This means that the party or parties who are injured by such a breach will be compensated for their injury. 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. (Compania Maritima v. Allied Free Worker’s Union, G.R. Actual or compensatory damages cannot be presumed but must be proved with reasonable certainty. (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. (People v. Orilla, 422 SCRA 620). It even proposed that it be allowed to complete the works until November 15, 1997, way beyond the original as well as the extended contract period. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. 9184 otherwise known as the “Government Procurement Reform Act” took effect on 26 January 2003, while its 2016 Revised 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. 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. 182, 205 (2004). 6. No. The buyer and seller then initial the liquidated damages clause that states the cap amount of liquidated damages. 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. Additional extension was requested due to bad weather condition that prevailed during the implementation of the projects, again causing excusable delay. Petitioner elevated the matter to the CA docketed as CA-G.R. The total daily liquidated damages up to and including the day immediately before the date the Owner effectively takes over the work. 1. Petitioners liability for liquidated damages is not inconsistent with respondents takeover of the project, or termination of the contract or even the eventual completion of the project. SP No. As worded, the amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. Actual or compensatory damages simply make good or replace the loss caused by the wrong. Such is only relevant in the exercise of respondents right to terminate the contract but not in the entitlement to liquidated damages. 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. x x x50 (Emphasis supplied. The CA agreed with the CIAC that petitioners counterclaims could not be dismissed on the ground of forum shopping, because the civil case before the RTC was dismissed for lack of jurisdiction. Claimant must produce competent proof or the best evidence obtainable such as receipts to justify an award therefore. 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. BIR Ruling No. The assessment is left to the discretion of the court according to the circumstances of each case. However, for these damages to be upheld in court, the calculations must be reasonable. 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. 2228. It likewise hired Building Energy Systems, Inc. (BESI) to provide management services for the construction and development of the project. (Tan v. Bantegui, 473 SCRA 663). 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. 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. How to Select a Lawyer . 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. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. Republic Act (RA) No. vs. 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). 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. The Owner may deduct from any sum due or to become due the Contractor any sums accruing for liquidated damages as herein stated. 141697, the petition was denied for petitioners failure to submit a valid affidavit of service of copies of the petition to respondent.33 Petitioners 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. WHEREAS. Art. 43 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, supra note 40. The money will be withdrawn until the project is complete. 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. b. 45 Exhibit "A"; Expanding Envelope No. Section 3: The lawful occupation by the OWNER of any completed portion of the PROJECT subject of this Contract shall not be deemed as a waiver of whatsoever rights and/or remedies the OWNER may have or is entitled to under the law and/or under the terms and conditions of this Contract, nor shall it diminish whatever liability the CONTRACTOR may incur for the liquidated damages provided herein with respect to the delays in the installation of the other portions of the Works in the PROJECT. 168074, September 26, 2008, 566 SCRA 473. Under Philippine laws, these damages take the nature of penalties. 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. The Architect may grant the request for extension for such period of time as he considers reasonable. 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. SP No. 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 petitioners 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. BATASnatin LIVE! 1. 531, 536 (2003). 147614, January 29, 2004, 421 SCRA 428, 445; 466 Phil. “Article 2226. Free legal advice visit BATASnatin YouTube for more details! 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, Attorneys Fees and Cost of Litigation excluding Arbitration Fees, Net Award P 1,087,187.8025. 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, petitioners percentage accomplishment was only 62.57%. 2226. SECTION 4. Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. 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. 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. 170732 October 11, 2012. At the outset, the Court notes that the case involved various claims and counterclaims separately set up by petitioner and respondent. * Designated Acting Member, per Special Order No. The Tribunal notes the Respondent-Contractor did not document at the time the reasons now being claimed as causing the delay. The CIAC found that petitioner incurred delay in the completion of the project. Besides, the General Conditions specifically lay down the requirements for a valid extension of the contract period, to wit: Article 21.04. 1226. 1228, NCC). Generally, both parties will need to agree to the amount of liquidated damages for them to be included in a contract. 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. Article 2228. Thus, petitioner aptly set up its counterclaims before the CIAC.35 The CA also sustained the CIACs 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 respondents claim for liquidated damages. 51 Exhibit "K"; Expanding Envelope 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 respondents 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 petitioners 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 respondents claims should be deducted.32 In effect, both petitioners and respondents claims and counterclaims were partly granted. 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. Actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. On the other hand, it awarded respondent only with the excess cost to complete the unfinished project. Exception: Criminal cases. Petitioner elevated the matter to the CA, but the same was dismissed, which dismissal was affirmed by the Court. 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. 9 Exhibit "H"; Expanding Envelope No. 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. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. In almost every case, liquidated damages will be specified for a precise type of breach of contract. With the modification of the contract period, petitioner was obliged to perform the works and deliver the units only until April 7, 1997. PRESBITERO J. VELASCO, JR.Associate JusticeChairperson. Section 2: Any sum which may be payable to the OWNER for such liquidated damages may be deducted from the amounts retained under Article V, or retained by the OWNER from any balance of whatever nature which may be due or become due the CONTRACTOR when any particular works called for under this Contract shall have been finished or completed. However, there must be proof that the defendant caused physical suffering etc. 52070. Liquidated damages are subject to income tax, the same being compensation for the loss of anticipated profits. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. 1299 dated August 28, 2012. 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. Republic of the PhilippinesSUPREME COURTManila, G.R. 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. Suspension of the Works for at least fifteen days shall be deemed unreasonable.44 (Emphasis supplied). GR: Factual basis must be alleged. The liability for liquidated damages is governed by Articles 2226-2228 of the Civil Code which provide: Article 2226. This is because a mere delay in payment is unlikely to cause damage. Liquidated Damages 5. An average of the likely costs which may be incurred in dealing with a breach may be used. 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 CONTRACTORS Performance Bond all forms of damages it may suffer and to hire another CONTRACTOR to finish the Works. 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. 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. Petitioner, however, still failed to complete and deliver the units within the extended period. 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. That the claimant is entitled to moral, temperate or compensatory damages; and 2. No proof of pecuniary loss is necessary. 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. Delayed completion of the project; and, 3. 13 Exhibit "J"; Expanding Envelope No. 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. Aggrieved, petitioner moved for reconsideration of the decision. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. The resolution of the issue of respondents entitlement to liquidated damages hinges on whether petitioner was in default in the performance of its obligation.39. No proof of pecuniary loss is necessary. 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