Case Digest (G.R. No. 170732)
Facts:
Atlantic Erectors, Inc. and Herbal Cove Realty Corporation entered into a Construction Contract on June 20, 1996 for Construction Package A with a completion period of 180 consecutive calendar days from the Notice to Proceed, at a contract price later adjusted to P16,726,745.19, with liquidated damages of 1/10 of 1% of the contract price per calendar day of delay (maximum 10%). Despite extensions granted for delays in the turnover of sites and bad weather, petitioner still failed to complete and deliver the units within the extended periods; respondent then required petitioner to submit a formal commitment to finish by a specified date, later informed petitioner of contract termination for defects, delay, and lack of commitment, and proceeded to have the project completed through another arrangement. In CIAC Case No. 13-98, the CIAC partly granted both parties’ claims, awarding petitioner the retention pay and certain work and jobsite materials/equipment values, while awarding respondent only the excess cost to complete; it refused to award respondent the stipulated liquidated damages due to the CIAC’s finding that termination was illegal for failure to comply with the contract’s 15-day notice requirement. On appeal, the Court of Appeals affirmed with modification, holding petitioner liable for liquidated damages, prompting petitioner’s Rule 45 petition.
Issues:
- Whether petitioner could be held liable for liquidated damages despite the illegal termination of the construction contract.
Ruling:
The petition was denied for lack of merit. The Court held that the CA correctly modified the CIAC award by imposing liquidated damages on petitioner, because the decisive factor for such liability was petitioner’s delay in completing the works within the contract period as extended, not the validity of termination.
Ratio:
The Court ruled that the contract provisions and general conditions made liquidated damages a distinct remedy arising from unexcused delay, while termination required compliance with the separate notice requirement; thus, an illegal termination did not negate liability for damages caused by delayed completion. Petitioner failed to complete the works within the period agreed upon after extensions (latest being April 7, 1997) and did not validly secure any further written extension as contractually required. The respondent’s demand for petitioner to submit a commitment to finish was relevant to the decision whether to terminate or take over, but it did not waive respondent’s contractual right to liquidated damages for delay beyond the agreed dates.
Doctrine:
- Liquidated damages under Articles 2226-2228 of the Civil Code are enforceable upon proof of delay in performance, consistent with the parties’ stipulation.
- The owner’s right to terminate for cause and the right to recover liquidated damages due to delay are distinct remedies, and illegality of termination does not bar liquidated damages if delay is established.
- Contractual extensions of time must comply with the contract’s specified requisites (including written approval), otherwise the contractor remains liable for delay.
- Liquidated damages are subject to reduction only when they are iniquitous or unconscionable, which was not warranted on the facts.