If intended as a penalty in obligations with a penal cause, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded (Art. Generally, contracts that involve the exchange of money or the promise of performance have a liquidated damages stipulation. Besides, the General Conditions specifically lay down the requirements for a valid extension of the contract period, to wit: Article 21.04. 1. To minimise exposure, many contractors will seek to enter into contracts with the subcontractors on substantially the same terms as their contract up the chain. COuNTRIEs REpREsENTEd australia • 4 Bangladesh • 6 China • 8 hong Kong • 10 india • 12 indonesia • 14 Japan • 16 Korea • 18 maCau • 20 Notwithstanding the declaration of the illegality of the termination of the contract, petitioner could still be charged with liquidated damages by reason of the delay in the completion of the project. 138980, September 20, 2005, 470 SCRA 260, 269. With the modification of the contract period, petitioner was obliged to perform the works and deliver the units only until April 7, 1997. That the crime was committed with 1 or more aggravating circumstances, or the quasi-­‐delict was committed with gross negligence, or in contracts and quasi-contracts the act must be accompanied by bad faith or done in wanton, fraudulent, oppressive or malevolent manner. No proof of pecuniary loss is necessary. 148568, March 20, 2003, 399 SCRA 409, 411; 447 Phil. I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion or the Court's Division. It is attached to an obligation in order to ensure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.40 The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project.41 As a pre-condition to such award, however, there must be proof of the fact of delay in the performance of the obligation.42, To resolve the question of default by the parties, we must re-examine the terms of the Construction Contract and the relevant documents which form part of the parties’ agreement. E. consulting services. The total daily liquidated damages up to and including the day immediately before the date the Owner effectively takes over the work. 1. Petitioner insists that the award of liquidated damages made by the CA be deleted, because it was not given the chance to finish the works within the period of commitment to do so on or before November 15, 1997. If intended as a penalty in obligations with a penal cause, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded (Art. 3. 13-98; while the assailed. “Article 2226. PRESBITERO J. VELASCO, JR.Associate JusticeChairperson. We do not, in making these materials available to you, intend to give you legal or professional advice or opinions. An average of the likely costs which may be incurred in dealing with a breach may be used. – Liquidated Damages. 1299 dated August 28, 2012. Section 4, Article IX of the Construction Contract states: Moreover, Article 21.05 of the General Conditions amplifies petitioner’s liability for damages, to wit: 21.05. That the claimant is entitled to moral, temperate or compensatory damages; and 2. Proof that a legal right has been violated is what is only required. 48 Advanced Foundation Construction Systems Corporation v. New World Properties and Ventures, Inc., G.R. L-31379, Aug. 29, 1988). Tomas, Inc. v. Rizal Cement Company, Inc., G.R. IMPORTANT NOTICE: The ADA designed these materials to assist our member dentists. No. In a letter14 dated January 11, 1997, respondent allowed the requested schedule adjustments with a reminder that liquidated damages shall be applied beyond the extended periods. 13 Exhibit "J"; Expanding Envelope No. No. 1 Penned by Associate Justice Godardo A. Jacinto, with Associate Justices Bienvenido L. Reyes (now a member of this Court) and Rosalinda Asuncion-Vicente, concurring; rollo, pp. Actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. Liquidated damages are specified daily charges deducted from moneys otherwise payable to the contractor for each day the contractor fails to meet a milestone and/or contract completion date. In the separate appeal filed by respondent, the CA modified the CIAC decision by making petitioner liable for liquidated damages. May be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. Liquidated Damages. For purposes of calculating, the actual completion date shall be the date certified by the Architect under Article 20.11 hereof.45. Yet it still reneged on its obligation. On the other hand, it awarded respondent only with the excess cost to complete the unfinished project. Generally, both parties will need to agree to the amount of liquidated damages for them to be included in a contract. x x x47, In other words, petitioner never sent notice to respondent regarding a request for extension of time to finish the work despite its claim of the existence of circumstances fairly entitling it to an extension of the contract period. 18 Exhibit "V"; Expanding Envelope No. No. Art. 13-98. The exact amount of damages to be awarded is commonly stated in a liquidated damages clause, though that is not required. If a contract mentions an amount payable at a certain date and an additional amount if a default happens, then the additional sum is a penalty. 42 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., supra note 39, at 489. In answer to petitioner’s request for schedule adjustments, respondent, in its letter dated January 11, 1997, allowed such extension and fixed the new date of completion, the latest of which was April 7, 1997. The CIAC thus awarded petitioner the retention pay; the unpaid value of its work accomplishment; and the value of the materials, tools and equipment left at jobsite. When the amount of compensation is fixed and is a fair assessment of damages sustained by the victim, it is said to be liquidated damages. When the court is convinced that there has been such a loss, the judge is empowered to calculate moderate damages rather than let the complainant suffer without redress. 170732               October 11, 2012. The Owner may deduct from any sum due or to become due the Contractor any sums accruing for liquidated damages as herein stated. When there is a breach of contract, it … SP No. infrastructure projects: 43 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, supra note 40. 40 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, G.R. At the outset, the Court notes that the case involved various claims and counterclaims separately set up by petitioner and respondent. Monetary damages may also be available where the employer can show that damage to its business interests has in fact occurred (e.g., loss of clients to the former employee’s new company). Should the contractor be obstructed or delayed in the prosecution or completion of the work x x x then the contractor shall within fifteen (15) days from the occurrence of such delay file the necessary request for extension. WHEREFORE, premises considered, the petition is DENIED for lack of merit. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. On September 22, 1997, respondent required petitioner to submit a formal written commitment to finish and complete the contracted works, otherwise, the contract would be deemed terminated and respondent would take over the project on October 1, 1997 with the corresponding charges for the excess cost occasioned thereby, plus liquidated damages.16 On October 3, 1997, respondent informed petitioner that the former’s management had unanimously agreed to terminate the subject construction contract for the following reasons: 1. This means that the party or parties who are injured by such a breach will be compensated for their injury. 1212-2018 dated 28 September 2018 Facts: Q Co., a domestic corporation, is a common carrier for cargo and passengers in Any and all claims of its entitlement to period adjustment should not be granted to petitioner as would excuse it from liability for delay.1âwphi1. As worded, the amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. SP No. Except for the delay in the turnover of the sites extensions which were granted, Respondent did not file for and did not obtain formal extension of its time of completion beyond April 7, 1997. 52070. The CA explained that the right to liquidated damages is available to respondent whether or not it terminated the contract because delay alone is decisive.37. 2228. GR: Factual basis must be alleged. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation. The total amount of liquidated damages shall not exceed ten percent (10%) of the amount of the contract. Article 2227. Mobile Globe: +63 (915) 954-6080Mobile Smart: +63 (949) 589-8377 Landline: (632) 359-4203, 2nd Floor LC Building, 31 Gen. Luna St., Tuktukan 1632 Taguig City, Philippines, © 2020 BATASnatin - Filipino's Comprehensive Online Law Resource and Community. 6. Free legal advice visit BATASnatin YouTube for more details! Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. The request made by respondent was only necessary in the determination of whether petitioner could still complete the works or there is already a need for respondent to take over the project or engage the services of another contractor. The CONTRACTOR hereby expresses covenants and agrees to pay to the Owner liquidated damages equivalent to the One-Tenth of One Percent (1/10 of 1%) of the Contract Price per calendar day of delay until completion, delivery and acceptance of the said Works by the OWNER to a maximum amount not to exceed 10%. Recovery of Real or Personal Property, Damages, etc... Non-payment / Underpayment of Salaries and Benefits. Petitioner now comes before the Court in this petition for review on certiorari with this sole issue: WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE OR HAS DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT RULED AND MODIFIED THE DECISION OF THE CIAC FINDING PETITIONER LIABLE TO PAY RESPONDENT LIQUIDATED DAMAGES.38. Respondent questioned the CIAC’s failure to dismiss petitioner’s counterclaims on the ground of forum shopping. 1228, NCC). Even if the contract specifies a sum as ‘penalty’ or ‘damages’, the Court needs to discern fro… No. (Robleza v. CA, 174 SCRA 354). No. Authority for the proposition that averaging is the appropriate approach … Liquidated Damages Monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract. The CIAC found that petitioner incurred delay in the completion of the project. 52070. Thus, petitioner aptly set up its counterclaims before the CIAC.35 The CA also sustained the CIAC’s conclusion on the illegality of the termination of the construction contract for failure of respondent to comply with the 15-day notice.36 It, however, could not agree with the CIAC as to respondent’s claim for liquidated damages. Exception: Criminal cases. Liquidated damages clauses operate to incentivise each party to complete their obligations under the contract on time. 52 R.S. 173155, March 21, 2012. c. x x x However, if in the opinion of the Architect, the nature of the increased work is such that the new Contract Time as computed above is unreasonably short, the time allowance for any extension and increases shall be as agreed upon in writing.49 (Emphasis supplied). Stated in simple terms, as long as the contractor fails to finish the works within the period agreed upon by the parties without justifiable reason and after the owner makes a demand, then liability for damages as a consequence of such default arises. OWNER’S RIGHT TO RECOVER LIQUIDATED DAMAGES: Neither the taking over by the Owner of the work for completion by administration nor the re-letting of the same to another Contractor shall be construed as a waiver of the Owner’s rights to recover damages against the original Contractor and/or his sureties for the failure to complete the work as stipulated. Petitioner was allowed to complete and deliver the housing units until the following dates: SDA-15 15 March 1997 or an extension of 67 calendar days, TH 16-A and TH 16-B 7 March 1997 or an extension of 59 calendar days, TH 17-A and TH 17-B 7 April 1997 or an extension of 90 calendar days15. Liquidated damages calculation can be extremely difficult, especially because it can be hard to prevent future losses. Article 2228. 2227. vs. Protection of the Environment and Natural Resources. The CA agreed with the CIAC that petitioner’s counterclaims could not be dismissed on the ground of forum shopping, because the civil case before the RTC was dismissed for lack of jurisdiction. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. However, there must be proof that the defendant caused physical suffering etc. CLAUSE ON LIQUIDATED DAMAGES OF THE GENERAL CONDITIONS OF THE CONTRACT, PHILIPPINE BIDDING DOCUMENTS FOR THE PROCUREMENT OF GOODS, INFRASTRUCTURE PROJECTS AND CONSULTING SERVICES . Nos. 1. Art. circumstances. (People v. Ereno, Feb. 22, 2000), NOTE: Ordinary Damages are those generally inherent in a breach of a typical contract, Awarded only to enable the injured party to obtain means, diversion or amusement that will alleviate the moral suffering he has undergone, by reason of defendants culpable action. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. 1. It likewise hired Building Energy Systems, Inc. (BESI) to provide management services for the construction and development of the project. Moral damages may be awarded to the victim in criminal proceedings in such amount as the court deems just without need for pleading or proof of the basis thereof (People v. Paredes, July 30, 1998). (Compania Maritima v. Allied Free Worker’s Union, G.R. Art. (Sec. 49 Exhibit "A"; Expanding Envelope No. EXTENSION OF TIME: The Contractor will be allowed an extension of time based on the following conditions: a. SECTION 4. Undoubtedly, petitioner may be held to answer for liquidated damages in its maximum amount which is 10% of the contract price. Petitioner, however, still failed to complete and deliver the units within the extended period. For as long as they are not contrary to law, morals, good customs, public order, or public policy, the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient.43. Manner of Determination. 1226. The principal can recover their loss without having to prove their actual loss, and the contractor will have certainty that the contract will … 489. As no extension was validly agreed upon and in view of the established fact that petitioner failed to complete the works and deliver the housing units within the stipulated period, petitioner’s liability for liquidated damages arose, which is 1/10 of 1% of the contract price per calendar day of delay to a maximum amount of 10% of the contract price. 1. (Tan v. Bantegui, 473 SCRA 663). The pertinent provisions of the Construction Contract which lay down the rules in case of failure to complete the works read: Section 1: The CONTRACTOR acknowledges that the OWNER shall not suffer [loss] by the delay or failure of the CONTRACTOR to finish and complete the works called for under this Contract within the time stipulated in Section 6, Article IV. Additional extension was requested due to bad weather condition that prevailed during the implementation of the projects, again causing excusable delay. Lack of interest to make a firm commitment to finish the project.17. Claimant must produce competent proof or the best evidence obtainable such as receipts to justify an award therefore. If the sum payable is far in excess of the probable damage on breach of the contract, then it is a penalty. Art. It is noteworthy that at the time such adjustment was given, respondent specified that liquidated damages shall be applied beyond the extended period given as provided for in their Construction Contract.51 Clearly, respondent had also made a demand for the payment of said damages should delay be incurred by petitioner beyond the new agreed dates. Aside from the need for the claimant to satisfactorily prove the existence of the factual basis of the damages, it is also necessary to prove its causal relation to the defendant’s act (Raagas v. Trava, G.R. Liquidated damages Once the cumulative amount of liquidated damages reaches ten percent (10%) of theamount contract, the Procuring Entity may rescind or terminate the contract, without prejudice to other courses of action and remedies available under the circumstances. What is the rule on the applicable period for the completion of work? While in its letter dated September 22, 1997 respondent indeed required petitioner to submit a formal written commitment to finish and complete the project by a certain date, the same should not be deemed a waiver of its right to collect liquidated damages. Section 5: The provision on liquidated damages notwithstanding, the OWNER, upon certification of the PROJECT MANAGER that sufficient cause exists to justify its action, may without prejudice to any other right or remedy and after giving the CONTRACTOR and its sureties proper notice in writing, terminate this Contract and take over the performance of the Works either by administration or otherwise, and to charge against the CONTRACTOR and its sureties the excess cost occasioned thereby. Republic of the PhilippinesSUPREME COURTManila, G.R. No. Actual or compensatory damages simply make good or replace the loss caused by the wrong. Also, Section 3, Article V of the Construction Contract emphasizes that any extension in the contract period must be in writing, to wit: Section 3: The OWNER may, at any time during the progress of the performance of the Works in the PROJECT, order a change or changes in the plans and specifications; provided, that in such cases, any increase or decrease in the Contract Price above stipulated shall be subject to proportionate adjustment mutually agreed upon. If the amount is not specified, it is considered at large, meaning that a court or other tribunal will determine the appropriate amount to award if and when a breach actually occ… Petitioner elevated the matter to the CA docketed as CA-G.R. 51 Exhibit "K"; Expanding Envelope No. 1. No proof of pecuniary loss is necessary. While we have reduced the amount of liquidated damages in some cases because of partial fulfillment of the contract and/or the amount is unconscionable, we do not find the same to be applicable in this case.52 Per the CIAC findings, as of the last certified billing, petitioner’s percentage accomplishment was only 62.57%. 1228, NCC). Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. Republic Act (RA) No. "There were instances that DOH resolved to extend the delivery without [charging] liquidated damages to suppliers," COA added. The clause states that if there is a breach of contract and the buyer backs out, the clause will protect the buyer by giving the earnest money or up to 3% of the purchase price (whichever is lower) to the buyer. Here are some principles to help you distinguish between a penalty and liquidated damages: 1. Based on the above provisions of law, the parties to a contract are allowed to stipulate on liquidated damages to be paid in case of breach. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. Usually awarded in the absence of proof of actual damages. No proof of pecuniary loss is necessary. Liquidated damages are frequently agreed upon by the parties, either by way of penalty or in order to avoid controversy on the amount of damages. 41 H.L. Exemplary or corrective damages are intended to serve as a deterrent to serious wrongdoings. COURT OF APPEALS and HERBAL COVE REALTY CORPORATION, Respondents. ), Without doubt, no further extension was sought after the expiration of the first extension given by respondent. 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