In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. Exception: Criminal cases. A liquidated damages clause is one means of ensuring compensation to a non-breaching party when another party breaches the contract. 138980, September 20, 2005, 470 SCRA 260, 269. No. However, there must be proof that the defendant caused physical suffering etc. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. circumstances. 1. 6. CLAUSE ON LIQUIDATED DAMAGES OF THE GENERAL CONDITIONS OF THE CONTRACT, PHILIPPINE BIDDING DOCUMENTS FOR THE PROCUREMENT OF GOODS, INFRASTRUCTURE PROJECTS AND CONSULTING SERVICES . 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. 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. Such a clause typically includes a specific amount of damages, payable to a non-breaching party in the event of a specific type of breach. Actual or compensatory damages simply make good or replace the loss caused by the wrong. No. ), Without doubt, no further extension was sought after the expiration of the first extension given by respondent. 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%. SP No. 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. Liquidated Damages. 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. 13 Exhibit "J"; Expanding Envelope No. Article 2228. 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. Liquidated damages are those that the parties agree to be paid in case of a breach. Art. 41 H.L. It is on this issue that petitioner comes before the Court raising in particular the propriety of making it liable for liquidated damages. EXTENSION OF TIME: The Contractor will be allowed an extension of time based on the following conditions: a. 86883-85, Jan. 29, 1993). It likewise hired Building Energy Systems, Inc. (BESI) to provide management services for the construction and development of the project. 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. No proof of pecuniary loss is necessary. (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. NOTE: Special Damages are those which exist because of special circumstances and for which a debtor in good faith can be held liable if he had been previously informed of such. 6038: Liquidated Damages For Construction Contracts. All crimes as defense lawyer or private prosecutor. Liquidated damages are subject to income tax, the same being compensation for the loss of anticipated profits. The Lawphil Project - Arellano Law Foundation. COURT OF APPEALS and HERBAL COVE REALTY CORPORATION, Respondents. The total amount of liquidated damages shall not exceed ten percent (10%) of the amount of the contract. This is because a mere delay in payment is unlikely to cause damage. (Robleza v. CA, 174 SCRA 354). 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. No. Claimant must produce competent proof or the best evidence obtainable such as receipts to justify an award therefore. No. Republic Act (RA) No. 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. 9 Exhibit "H"; Expanding Envelope No. The CIAC found that petitioner incurred delay in the completion of the project. Topic 6.1: Delays in Work Completion and Liquidated Damages Revised IRR-A Section 68, Annex “E” of RA 9184 and the Civil Code of the Philippines Article 2226 provide the rules in relation to delivery and liquidated damages. 40 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, G.R. 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. Basics of Liquidated Damages. Manner of Determination. Article 2228. 49 Exhibit "A"; Expanding Envelope No. On June 3, 1998, respondent filed with the CIAC a Request for Arbitration19 against petitioner praying for the payment of liquidated damages, cost to remedy defective workmanship, excess costs incurred to complete the work, attorney’s fees and litigation expenses. Liquidated damages provisions offer several benefits to the contracting parties, as well as the legal system. The principal can recover their loss without having to prove their actual loss, and the contractor will have certainty that the contract will … 1. 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. The assessment is left to the discretion of the court according to the circumstances of each case. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is … Additional extension was requested due to bad weather condition that prevailed during the implementation of the projects, again causing excusable delay. 1. As worded, the amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. Another way of looking at liquidated damages, is that it is the price the contractor must pay per day for working beyond the required completion dates. 2. Free legal advice visit BATASnatin YouTube for more details! 1299 dated August 28, 2012. * Designated Acting Member, per Special Order No. 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. 3. Besides, the General Conditions specifically lay down the requirements for a valid extension of the contract period, to wit: Article 21.04. That the claimant is entitled to moral, temperate or compensatory damages; and 2. “Article 2226. 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. Actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. In such case, the full extent of the damages for which the Contractor and/or his sureties liable shall be: a. 1212-2018 dated 28 September 2018 Facts: Q Co., a domestic corporation, is a common carrier for cargo and passengers in 39 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., G.R. 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). 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. LIQUIDATED DAMAGES: It is understood that time is an essential feature of this Contract, and that upon failure to complete the said Contract within the contract time, the Contractor shall be required to pay the Owner the liquidated damages in the amount stipulated in the Contract Agreement, the said payment to be made as liquidated damages, and not by way of penalty. No proof of pecuniary loss is necessary. The buyer and seller then initial the liquidated damages clause that states the cap amount of liquidated damages. 52070. It is undisputed that petitioner failed to perform the contracted works within the period as originally agreed upon. Liquidated Damages 5. 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. 13-98; while the assailed. "There were instances that DOH resolved to extend the delivery without [charging] liquidated damages to suppliers," COA added. Authority for the proposition that averaging is the appropriate approach … 33 The decision was embodied in a Minute Resolution dated March 6, 2000. No proof of pecuniary loss is necessary. 45 Exhibit "A"; Expanding Envelope No. Republic of the PhilippinesSUPREME COURTManila, G.R. 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. 28-42. 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. 1. Respondent questioned the CIAC’s failure to dismiss petitioner’s counterclaims on the ground of forum shopping. 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. No. SP No. The total daily liquidated damages up to and including the day immediately before the date the Owner effectively takes over the work. Aggrieved, petitioner moved for reconsideration of the decision. 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. At the outset, the Court notes that the case involved various claims and counterclaims separately set up by petitioner and respondent. IMPORTANT NOTICE: The ADA designed these materials to assist our member dentists. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. The assailed decision affirmed with modification the Decision4 of the Construction Industry Arbitration Commission (ClAC), dated March 11, 1999, ii1 CIAC Case No. infrastructure projects: 51 Exhibit "K"; Expanding Envelope No. (Sec. 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. Proof that a legal right has been violated is what is only required. E. consulting services. What is decisive of such entitlement is the fact of delay in the completion of the works. 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. COuNTRIEs REpREsENTEd australia • 4 Bangladesh • 6 China • 8 hong Kong • 10 india • 12 indonesia • 14 Japan • 16 Korea • 18 maCau • 20 170732               October 11, 2012. 9184 otherwise known as the “Government Procurement Reform Act” took effect on 26 January 2003, while its 2016 Revised See for the Israel Art 15 Contracts (Remedies for Breach of Contract) Law (the draft of the Civil Code no longer uses the term 'liquidated damages' but in Articles 568, 569 only speaks of 'agreed upon compensation') Philippines Art 1229 CC; South Africa Arts 1, 3 Conventional Penalties Act (1962). 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. No. WHEREFORE, premises considered, the petition is DENIED for lack of merit. Subcontracts and liquidated damages. 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. 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. Liquidated damages clauses operate to incentivise each party to complete their obligations under the contract on time. 46 Exhibit "A"; Expanding Envelope No. 43 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, supra note 40. The exact amount of damages to be awarded is commonly stated in a liquidated damages clause, though that is not required. Such is only relevant in the exercise of respondent’s right to terminate the contract but not in the entitlement to liquidated damages. Article 2227. Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. 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. Vindicating or recognizing the injured party’s right to a property that has been violated or invaded. 8 Atlantic Erectors, Inc. v. Herbal Cove Realty Corporation, G.R. This means that the party or parties who are injured by such a breach will be compensated for their injury. Article 2228. L-31379, Aug. 29, 1988). 1. 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. 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. What is the rule on the applicable period for the completion of work? Nos. 1228, NCC). 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. – Liquidated Damages. Further, this obligation cannot be avoided by the company’s SECTION 4. Recovery of Real or Personal Property, Damages, etc... Non-payment / Underpayment of Salaries and Benefits. 1. 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. 48 Advanced Foundation Construction Systems Corporation v. New World Properties and Ventures, Inc., G.R. BATASnatin LIVE! 2227. 2228. (Tan v. Bantegui, 473 SCRA 663). 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. Undoubtedly, petitioner may be held to answer for liquidated damages in its maximum amount which is 10% of the contract price. 18 Exhibit "V"; Expanding Envelope No. The money will be withdrawn until the project is complete. 147614, January 29, 2004, 421 SCRA 428, 445; 466 Phil. No. Section 6: If the Works are suspended for an unreasonable length of time, without any justifiable cause by the CONTRACTOR, such suspension shall be taken as abandonment of the Works, and the OWNER shall have the right to declare the CONTRACTOR in default; and the former shall be entitled to charge against the CONTRACTOR’S Performance Bond all forms of damages it may suffer and to hire another CONTRACTOR to finish the Works. Petitioner elevated the matter to the CA, but the same was dismissed, which dismissal was affirmed by the Court. PRESBITERO J. VELASCO, JR.Associate JusticeChairperson, Third Division. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. 180898, April 18, 2012; Filinvest Land, Inc. v. Court of Appeals, G.R. 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. 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. 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). Suspension of the Works for at least fifteen days shall be deemed unreasonable.44 (Emphasis supplied). 52200, but the same was denied due course in a Resolution dated July 26, 1999. 52 R.S. Liquidated damages are a fact of life when it comes to construction contracts. 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). Under Philippine laws, these damages take the nature of penalties. Petitioner, however, still failed to complete and deliver the units within the extended period. When there is a breach of contract, it … Art. 143154, June 21, 2006, 491 SCRA 557, 579-580. Assuming that the reasons for valid extension indeed exist, still, petitioner should bear the consequences for the delay as it deprived respondent of its right to determine the length of extension to be given to it and, consequently, to adjust the period to finish the extra work.48. 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. 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. 2226. Here are some principles to help you distinguish between a penalty and liquidated damages: 1. 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. In particular, there was … Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. vs. 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. On the other hand, if the amount of money demanded as compensation is extravagant and has no regard to the extent of damage … Tomas, Inc. v. Rizal Cement Company, Inc., G.R. 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. More importantly, respondent insisted that the CIAC erred in concluding: that the termination of the construction contract was illegal; that it is not entitled to liquidated damages and the excess cost to complete the project; that it is entitled to a reduced amount for the correction of petitioner’s defective work; and, that petitioner is entitled to the value of the materials, equipment and tools left at the jobsite.34, On February 28, 2005, the CA rendered the assailed decision affirming with modification the CIAC decision by awarding respondent liquidated damages of P1,572,674.51. 1. On June 20, 1996, respondent and Atlantic Erectors, Inc. (petitioner) entered into a Construction Contract5 whereby the latter agreed to undertake, accomplish and complete the entire works for the implementation of Construction Package A consisting of four (4) units of Townhouse B and 1 unit of Single Detached A1 of the project6 for a total contract price of P15,726,745.197 which was later adjusted to P16,726,745.19 as a result of additional works.8 Petitioner further agreed to finish and complete the works and deliver the same to respondent within a period of one hundred eighty (180) consecutive calendar days reckoned from the date indicated in the Notice to Proceed9 to be issued to petitioner.10 To secure the completion of the works within the time stipulated, petitioner agreed to pay respondent liquidated damages equivalent to 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 respondent to a maximum amount not to exceed ten percent (10%).11. 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. Art. 182, 205 (2004). Usually awarded in the absence of proof of actual damages. In almost every case, liquidated damages will be specified for a precise type of breach of contract. 173155, March 21, 2012. If the sum payable is far in excess of the probable damage on breach of the contract, then it is a penalty. 16 Exhibit "T"; Expanding Envelope No. Petitioner elevated the matter to the CA docketed as CA-G.R. No. 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. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. Petitioner was instructed to commence construction on July 8, 1996.12 In a letter13 dated January 6, 1997, petitioner requested for extension of time equivalent to the number of days of delay in the start of the works brought about by the belated turnover of the sites of the building. Generally, contracts that involve the exchange of money or the promise of performance have a liquidated damages stipulation. 168074, September 26, 2008, 566 SCRA 473. 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. BIR Ruling No. 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. On the other hand, it awarded respondent only with the excess cost to complete the unfinished project. 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. 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. 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. 1. The Architect may grant the request for extension for such period of time as he considers reasonable. 531, 536 (2003). 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. 1228, NCC). No proof of pecuniary loss is necessary. 17 Exhibit "U"; Expanding Envelope No. 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. Lack of interest to make a firm commitment to finish the project.17. 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. , at 489, at 489 in recompense for, loss or sustained... Or replace the loss caused by the parties, and they are iniquitous or unconscionable to answer liquidated! Inc. v. 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