We do not, in making these materials available to you, intend to give you legal or professional advice or opinions. 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. b. 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. Tomas, Inc. v. Rizal Cement Company, Inc., G.R. 148568, March 20, 2003, 399 SCRA 409, 411; 447 Phil. In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. 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. 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. The total amount of liquidated damages shall not exceed ten percent (10%) of the amount of the contract. 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. 42 Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., supra note 39, at 489. The assessment is left to the discretion of the court according to the circumstances of each case. 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. 18 Exhibit "V"; Expanding Envelope No. 48 Advanced Foundation Construction Systems Corporation v. New World Properties and Ventures, Inc., G.R. 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. 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. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. Actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. No. 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. Liquidated damages are a fact of life when it comes to construction contracts. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Liquidated damages are damages that are included in a contract to compensate for a potential breach of the contract. 46 Exhibit "A"; Expanding Envelope No. 143154, June 21, 2006, 491 SCRA 557, 579-580. 1. 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. SP No. Liquidated damages provisions offer several benefits to the contracting parties, as well as the legal system. 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. 6. (People v. Orilla, 422 SCRA 620). Art. Republic of the PhilippinesSUPREME COURTManila, G.R. 13-98; while the assailed. No. It likewise hired Building Energy Systems, Inc. (BESI) to provide management services for the construction and development of the project. SP No. That the claimant is entitled to moral, temperate or compensatory damages; and 2. infrastructure projects: The Owner may deduct from any sum due or to become due the Contractor any sums accruing for liquidated damages as herein stated. The Owner may collect such liquidated damages from the retention money or other securities posted by the Contractor, whichever is convenient to the Owner. Liquidated damages are subject to income tax, the same being compensation for the loss of anticipated profits. 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. 182, 205 (2004). The Architect may grant the request for extension for such period of time as he considers reasonable. Petitioner elevated the matter to the CA, but the same was dismissed, which dismissal was affirmed by the Court. 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. 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. 17 Exhibit "U"; Expanding Envelope No. PRESBITERO J. VELASCO, JR.Associate JusticeChairperson. Article 2227. No. 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. In the separate appeal filed by respondent, the CA modified the CIAC decision by making petitioner liable for liquidated damages. 43 Philippine Charter Insurance Corporation v. Petroleum Distributors & Service Corporation, supra note 40. Liquidated damages are specified daily charges deducted from moneys otherwise payable to the contractor for each day the contractor fails to meet a milestone and/or contract completion date. In such case, the full extent of the damages for which the Contractor and/or his sureties liable shall be: a. No proof of pecuniary loss is necessary. 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. 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. 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). 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. Aggrieved, petitioner moved for reconsideration of the decision. The exact amount of damages to be awarded is commonly stated in a liquidated damages clause, though that is not required. 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. The principal can recover their loss without having to prove their actual loss, and the contractor will have certainty that the contract will … This is because a mere delay in payment is unlikely to cause damage. 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. Manner of Determination. However, there must be proof that the defendant caused physical suffering etc. 45 Exhibit "A"; Expanding Envelope No. In particular, there was … Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. 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. Exemplary or corrective damages are intended to serve as a deterrent to serious wrongdoings. 86883-85, Jan. 29, 1993). 2228. 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. 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