The liquidated damages clause will define the damages, and when the clause is activated, the client will deduct money from what they owe the contractor. Respondent questioned the CIAC’s failure to dismiss petitioner’s counterclaims on the ground of forum shopping. 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. 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. Section 4: The obligation of the CONTRACTOR to pay damages due to unexcused delays shall not relieve it from the obligation to complete and finish the performance of the Works, and to secure the final certificate of inspection from the proper government authorities. 2226. Actual or compensatory damages simply make good or replace the loss caused by the wrong. Republic Act (RA) No. Recovery of Real or Personal Property, Damages, etc... Non-payment / Underpayment of Salaries and Benefits. 180898, April 18, 2012; Filinvest Land, Inc. v. Court of Appeals, G.R. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. COuNTRIEs REpREsENTEd australia • 4 Bangladesh • 6 China • 8 hong Kong • 10 india • 12 indonesia • 14 Japan • 16 Korea • 18 maCau • 20 Nos. Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. liquidated damages akin to penalty and provided that there is a contractual obligation on the part of the company to pay for the liquidated damages as soon as there is a delay in the supply of goods beyond the due date as per the delivery schedule. With the modification of the contract period, petitioner was obliged to perform the works and deliver the units only until April 7, 1997. (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. 1. 1. x x x50 (Emphasis supplied. At the January 18, 2007, meeting, the Regents approved the rescission of Policy No. ATLANTIC ERECTORS, INC., Petitioner, 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. Petitioner’s liability for liquidated damages is not inconsistent with respondent’s takeover of the project, or termination of the contract or even the eventual completion of the project. Article 2227. 2. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. Notwithstanding its categorical conclusion that petitioner was in default, the CIAC refused to award respondent the stipulated liquidated damages in view of the latter’s unlawful termination of the Construction Contract for want of a valid notice to petitioner. Exemplary or corrective damages are intended to serve as a deterrent to serious wrongdoings. (Compania Maritima v. Allied Free Worker’s Union, G.R. However, there must be proof that the defendant caused physical suffering etc. 41 H.L. Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. 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. Art. 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. The total daily liquidated damages up to and including the day immediately before the date the Owner effectively takes over the work. In particular, there was … 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. Aggrieved, petitioner moved for reconsideration of the decision. 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. 182, 205 (2004). 1. This excess cost includes cost of architectural managerial and administrative services, supervision and inspection from the time the Owner effectively took over the work by administration or by re-letting the same.46. SP No. 489. How to Select a Lawyer . Liquidated damages, also referred to as "liquidated and ascertained damages" are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. PRESBITERO J. VELASCO, JR.Associate JusticeChairperson, Third Division. The total amount of liquidated damages shall not exceed ten percent (10%) of the amount of the contract. No proof of pecuniary loss is necessary. No. Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Actual or compensatory damages cannot be presumed but must be proved with reasonable certainty. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. It is on this issue that petitioner comes before the Court raising in particular the propriety of making it liable for liquidated damages. (Robleza v. CA, 174 SCRA 354). 147614, January 29, 2004, 421 SCRA 428, 445; 466 Phil. 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. Such is only relevant in the exercise of respondent’s right to terminate the contract but not in the entitlement to liquidated damages. Liquidated damages clauses operate to incentivise each party to complete their obligations under the contract on time. Here are some principles to help you distinguish between a penalty and liquidated damages: 1. BATASnatin LIVE! 148568, March 20, 2003, 399 SCRA 409, 411; 447 Phil. 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. Besides, the General Conditions specifically lay down the requirements for a valid extension of the contract period, to wit: Article 21.04. 52200, but the same was denied due course in a Resolution dated July 26, 1999. Generally, contracts that involve the exchange of money or the promise of performance have a liquidated damages stipulation. 1. No. In the separate appeal filed by respondent, the CA modified the CIAC decision by making petitioner liable for liquidated damages. In almost every case, liquidated damages will be specified for a precise type of breach of contract. 170732               October 11, 2012. 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. (Tan v. Bantegui, 473 SCRA 663). 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. Republic of the PhilippinesSUPREME COURTManila, G.R. "There were instances that DOH resolved to extend the delivery without [charging] liquidated damages to suppliers," COA added. 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. 141697, the petition was denied for petitioner’s failure to submit a valid affidavit of service of copies of the petition to respondent.33 Petitioner’s motion for reconsideration was likewise denied in a Resolution dated June 26, 2000, which became final and executory on August 31, 2000 and, accordingly, recorded in the Book of Entries of Judgment. WHEREFORE, premises considered, the petition is DENIED for lack of merit. It likewise hired Building Energy Systems, Inc. (BESI) to provide management services for the construction and development of the project. 1299 dated August 28, 2012. Respondent, thereafter, entered into a Construction Administration Agreement18 with Benedict O. Manalo and Associates, Engineers and Construction Managers to finish, complete and deliver the housing units started by petitioner. Construction contracts typically include ‘liquidated damages’ provisions providing for payment of a specified amount to one party by the other if it fails to meet certain obligations. 143154, June 21, 2006, 491 SCRA 557, 579-580. Prior thereto, or on November 21, 1997, petitioner instituted with the Regional Trial Court (RTC) a civil case against respondent where it sought to recover the sum representing unpaid construction service already rendered, unpaid construction materials, equipment and tools, and cost of income by way of rental from equipment of petitioner held by respondent.20 The case was, however, dismissed on motion of respondent invoking the arbitration clause, which dismissal was affirmed by the Court.21. 1228, NCC). A liquidated damages clause is one means of ensuring compensation to a non-breaching party when another party breaches the contract. (GSIS v. Labung-Deang, 365 SCRA 341). No. 33 The decision was embodied in a Minute Resolution dated March 6, 2000. 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). No. 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). When the resolution was assailed before the Court in a petition for review on certiorari in G.R. 2228. 18 Exhibit "V"; Expanding Envelope No. This means that the party or parties who are injured by such a breach will be compensated for their injury. 1. 52070. * Designated Acting Member, per Special Order No. 173155, March 21, 2012. IMPORTANT NOTICE: The ADA designed these materials to assist our member dentists. (Sec. After a review and evaluation by the management group of the works done in the Project, we found blatant defects in the workmanship of the houses; 2. 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. 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. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is … When there is a breach of contract, it … 1. 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. 14 Exhibit "K"; Expanding Envelope No. SP No. Tomas, Inc. v. Rizal Cement Company, Inc., G.R. 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. (People v. Orilla, 422 SCRA 620). 86883-85, Jan. 29, 1993). 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. Further, this obligation cannot be avoided by the company’s On September 7, 2005, the CA issued a Resolution denying the motion, followed by another Resolution dated December 5, 2005 correcting the earlier resolution, which inadvertently referred to respondent as the party who filed the motion where in fact it was filed by petitioner. A perusal of the significant provisions of the Construction Contract as quoted above and the relevant construction documents would show that the CA did not err in concluding that the rights to liquidated damages and to terminate the contract are distinct remedies that are available to respondent. In obligations with a 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. 138980, September 20, 2005, 470 SCRA 260, 269. Usually awarded in the absence of proof of actual damages. At the outset, the Court notes that the case involved various claims and counterclaims separately set up by petitioner and respondent. Vindicating or recognizing the injured party’s right to a property that has been violated or invaded. 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. 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. Consequently, and pursuant to the agreement of the parties, petitioner is liable for liquidated damages in the amount of P 29,440.00 per day of delay, which shall be limited to a maximum of 10% of the project cost or P 294,400.00. 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. 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. 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. 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. After the reception of the parties’ evidence and the submission of their respective memoranda, the CIAC ordered respondent to pay petitioner P1,087,187.80, with 6% interest per annum from the time the award becomes executory.24 The CIAC summarized the awards as follows: Materials, tools and equipment left at jobsite, Rental cost of tools and equipment left at jobsite, Attorney’s Fees and Cost of Litigation excluding Arbitration Fees, Net Award P 1,087,187.8025. The Architect may grant the request for extension for such period of time as he considers reasonable. The exact amount of damages to be awarded is commonly stated in a liquidated damages clause, though that is not required. A liquidated damages formula that is common in leasing practice provides that the sum of lease payments past due, accelerated future lease payments, and the lessor’s estimated residual interest, less the net proceeds of disposition (whether by sale or re-lease) of the leased goods is the lessor’s damages. 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. 1. 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. 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. The excess cost incurred by the Owner in the completion of the project over the Contract Price. 1226. 40 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, G.R. 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. SP No. No proof of pecuniary loss is necessary. On the other hand, if the amount of money demanded as compensation is extravagant and has no regard to the extent of damage … BIR Ruling No. Under Philippine laws, these damages take the nature of penalties. 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. vs. Protection of the Environment and Natural Resources. 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%. Delayed completion of the project; and, 3. Generally, both parties will need to agree to the amount of liquidated damages for them to be included in a contract. No proof of pecuniary loss is necessary. 42 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., supra note 39, at 489. The assailed decision affirmed with modification the Decision4 of the Construction Industry Arbitration Commission (ClAC), dated March 11, 1999, ii1 CIAC Case No. The applicable liquidated damages is at least one-tenth (1/10) of a percent of the cost of unperformed portion for every day of delay. 9 Exhibit "H"; Expanding Envelope No. 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. The Lawphil Project - Arellano Law Foundation. No. GR: Factual basis must be alleged. 49 Exhibit "A"; Expanding Envelope No. Subcontracts and liquidated damages. Petitioner failed to meet its new deadline which was April 7, 1997. 1. 48 Advanced Foundation Construction Systems Corporation v. New World Properties and Ventures, Inc., G.R. In Philippine laws, there are six kinds of damages, namely: Actual or compensatory Damages; Moral Damages; Exemplary or corrective Damages; Liquidated Damages; Nominal Damages; Temperate or moderate Damages; Kinds of Damages under Philippine Law. Petitioner, however, still failed to complete and deliver the units within the extended period. What is decisive of such entitlement is the fact of delay in the completion of the works. b. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. The liability for liquidated damages is governed by Articles 2226-2228 of the Civil Code which provide: Article 2226. SECTION 4. In no case, however, shall such liquidated damages exceed 1/10 of 1% for every day of delay nor shall the total sum of liquidated damages exceed ten percent (10%) of the total contract price. 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. 28-42. Hence, we apply the general rule not to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy.53 Thus, we find no reason to disturb the CA conclusion. The Owner may collect such liquidated damages from the retention money or other securities posted by the Contractor, whichever is convenient to the Owner. 52 R.S. Actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. No. 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. E. consulting services. 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. This is because a mere delay in payment is unlikely to cause damage. However, as aptly found by the CIAC, petitioner did not seek additional time within which to complete the project.1âwphi1 We quote with approval the CA observations in this wise: It is the Tribunal’s finding that the Respondent-Contractor is delayed in the completion of the project. Nevertheless, in the event that the alterations and the changes mentioned herein shall affect the Contract period, an extension thereof shall also be subject to proportionate adjustment in writing. 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. WHEREAS. No. 13-98. Exception: Criminal cases. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. The facts of the case, as culled from the records, are as follows: Respondent Herbal Cove Realty Corporation (respondent) engaged DP Architects Philippines to prepare architectural designs and RA&A Associates to provide engineering designs for its subdivision project known as "The Herbal Cove" located at Iruhin West, Tagaytay City. – Liquidated Damages. 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. All crimes as defense lawyer or private prosecutor. 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. In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. While it did file a request for extension which was granted until April 7, 1997, the project remained incomplete and no further extension was asked26 Notwithstanding the delay, the CIAC found the termination of the contract illegal for respondent’s failure to comply with the requirements of termination, as the contract specifically provides that petitioner be given 15-day notice prior to such termination.27 It added that petitioner’s delay was overridden by the unlawful termination of the contract.28 Consequently, respondent was not awarded liquidated damages.29 For failure to submit sufficient evidence, the CIAC also found respondent not entitled to the additional cost to complete the project.30 As to the cost of correcting the defects, it concluded that although respondent failed to prove the cost of correcting the defects, reasonable cost should be awarded in view of the admitted and proven defects.31 Finally, the CIAC found petitioner entitled to the 10% retention which is P1,012,139.89 from which respondent’s claims should be deducted.32 In effect, both petitioner’s and respondent’s claims and counterclaims were partly granted. The Tribunal finds it unusual that for a project with a Project Construction Manager, there were also no proper reports showing and reporting the changes, additions and deviations to approved schedules. 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. infrastructure projects: 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. 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… Denied due course in a petition for review on certiorari in G.R in maximum. 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