Since May 18, 1973, this policy required a liquidated damages clause to be inserted in every construction contract over … 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… 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. 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. resolutions denied petitioner Atlantic Erectors, Inc.'s Motion for Partial Reconsideration. Notwithstanding its categorical conclusion that petitioner was in default, the CIAC refused to award respondent the stipulated liquidated damages in view of the latters unlawful termination of the Construction Contract for want of a valid notice to petitioner. SECTION 4. All crimes as defense lawyer or private prosecutor. Recovery of Real or Personal Property, Damages, etc... Non-payment / Underpayment of Salaries and Benefits. 18 Exhibit "V"; Expanding Envelope 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. No. 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. What is the rule on the applicable period for the completion of work? Art. In answer to petitioners 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. (Compania Maritima v. Allied Free Worker’s Union, G.R. Tomas, Inc. v. Rizal Cement Company, Inc., G.R. Here are some principles to help you distinguish between a penalty and liquidated damages: 1. 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. Respondent interposed a separate appeal assailing the same CIAC decision, docketed as CA-G.R. 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%. 42 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., supra note 39, at 489. "There were instances that DOH resolved to extend the delivery without [charging] liquidated damages to suppliers," COA added. Article 2228. No. 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. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. “Article 2226. GR: Factual basis must be alleged. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. 2. Liquidated damages are a fact of life when it comes to construction contracts. Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. Lack of interest to make a firm commitment to finish the project.17. No. 1. The buyer and seller then initial the liquidated damages clause that states the cap amount of liquidated damages. 168074, September 26, 2008, 566 SCRA 473. The exact amount of damages to be awarded is commonly stated in a liquidated damages clause, though that is not required. 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. Liquidated damages provisions offer several benefits to the contracting parties, as well as the legal system. The Lawphil Project - Arellano Law Foundation. On the other hand, if the amount of money demanded as compensation is extravagant and has no regard to the extent of damage … As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. Petitioner, however, still failed to complete and deliver the units within the extended period. The total daily liquidated damages up to and including the day immediately before the date the Owner effectively takes over the work. Art. 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. 173155, March 21, 2012. 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. This is because a mere delay in payment is unlikely to cause damage. 9184 otherwise known as the “Government Procurement Reform Act” took effect on 26 January 2003, while its 2016 Revised 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. 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). 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. 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: 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. 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. Subcontracts and liquidated damages. 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. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. L-31379, Aug. 29, 1988). 49 Exhibit "A"; Expanding Envelope No. This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals (CA) Decision1 dated February 28, 2005 and Resolutions dated September 7, 20052 and December 5, 20053 in CA-G.R. In the separate appeal filed by respondent, the CA modified the CIAC decision by making petitioner liable for liquidated damages. 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. 9 Exhibit "H"; Expanding Envelope No. Article 2228. The Owner may deduct from any sum due or to become due the Contractor any sums accruing for liquidated damages as herein stated. In particular, there was … 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. The Tribunal notes the Respondent-Contractor did not document at the time the reasons now being claimed as causing the delay. 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. 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. When there is a breach of contract, it … That the claimant is entitled to moral, temperate or compensatory damages; and 2. SP No. 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. WHEREAS. 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. infrastructure projects: Under Philippine laws, these damages take the nature of penalties. 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. 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. 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. No proof of pecuniary loss is necessary. Article 2227. Clearly, respondents entitlement to liquidated damages is distinct from its right to terminate the contract. 1. 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, petitioners 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. * Designated Acting Member, per Special Order No. 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. Liquidated Damages. vs.
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. We do not, in making these materials available to you, intend to give you legal or professional advice or opinions. 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. 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. 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. EXTENSION OF TIME: The Contractor will be allowed an extension of time based on the following conditions: a. Exemplary or corrective damages are intended to serve as a deterrent to serious wrongdoings. Exception: Criminal cases. Petitioner elevated the matter to the CA docketed as CA-G.R. 33 The decision was embodied in a Minute Resolution dated March 6, 2000. 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. It is likewise settled that an extension was requested by petitioner and granted by respondent. 1. At the January 18, 2007, meeting, the Regents approved the rescission of Policy No. In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. 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. If the sum payable is far in excess of the probable damage on breach of the contract, then it is a penalty. Art. An average of the likely costs which may be incurred in dealing with a breach may be used. Besides, the General Conditions specifically lay down the requirements for a valid extension of the contract period, to wit: Article 21.04. No. 39 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., G.R. 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. 41 H.L. 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, attorneys fees and litigation expenses. ATLANTIC ERECTORS, INC., Petitioner,
Liquidated damages are subject to income tax, the same being compensation for the loss of anticipated profits. L-20081, Feb. 27,1968; People v. Manero, 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. No. No. (People v. Orilla, 422 SCRA 620). In almost every case, liquidated damages will be specified for a precise type of breach of contract. Petitioner elevated the matter to the CA, but the same was dismissed, which dismissal was affirmed by the Court. However, there must be proof that the defendant caused physical suffering etc. 52070. CLAUSE ON LIQUIDATED DAMAGES OF THE GENERAL CONDITIONS OF THE CONTRACT, PHILIPPINE BIDDING DOCUMENTS FOR THE PROCUREMENT OF GOODS, INFRASTRUCTURE PROJECTS AND CONSULTING SERVICES . 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 assessment is left to the discretion of the court according to the circumstances of each case. The Architect may grant the request for extension for such period of time as he considers reasonable. ), Without doubt, no further extension was sought after the expiration of the first extension given by respondent. However, for these damages to be upheld in court, the calculations must be reasonable. 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. 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. 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. In such case, the full extent of the damages for which the Contractor and/or his sureties liable shall be: a. SP No. Respondent questioned the CIACs failure to dismiss petitioners counterclaims on the ground of forum shopping. The principal can recover their loss without having to prove their actual loss, and the contractor will have certainty that the contract will … Additional extension was requested due to bad weather condition that prevailed during the implementation of the projects, again causing excusable delay. Art. With the modification of the contract period, petitioner was obliged to perform the works and deliver the units only until April 7, 1997. 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 formers management had unanimously agreed to terminate the subject construction contract for the following reasons: 1. 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. No. (Tan v. Bantegui, 473 SCRA 663). 1226. Liquidated damages are those that the parties agree to be paid in case of a breach. 1. The Owner may collect such liquidated damages from the retention money or other securities posted by the Contractor, whichever is convenient to the Owner. The total amount of liquidated damages shall not exceed ten percent (10%) of the amount of the contract. Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. 28-42. Republic of the PhilippinesSUPREME COURTManila, G.R. 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. Manner of Determination. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. No proof of pecuniary loss is necessary. 489. 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 Tribunals finding that the Respondent-Contractor is delayed in the completion of the project. Actual or compensatory damages cannot be presumed but must be proved with reasonable certainty. 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. 1228, NCC). 52 R.S. Liquidated damages clauses operate to incentivise each party to complete their obligations under the contract on time. At the outset, the Court notes that the case involved various claims and counterclaims separately set up by petitioner and respondent. – Liquidated Damages. 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). 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