Prepared by: Jeremy Chua

Filinvest land vs CA
Topic: Art 1226
Facts:
- 26 April 197! Filinvest "and! #nc$ a%arded to de&endant Paci&ic '(uipment Corporation the development o& its residential
subdivisions consistin) o& t%o *2+ parcels o& land located at Payatas! ,ue-on City! the terms and conditions o& %hich:
To )uarantee its &aith&ul compliance and pursuant to the a)reement! de&endant Paci&ic posted t%o *2+ .urety
/onds in &avor o& plainti&& %hich %ere issued by de&endant Philippine American 0eneral #nsurance
- 1ot%ithstandin) three e2tensions )ranted by plainti&& to de&endant Paci&ic! the latter &ailed to &inish the contracted %or3s$
- Filinvest %rote de&endant Paci&ic advisin) the latter o& its intention to ta3e over the pro4ect and to hold said de&endant liable &or
all dama)es %hich it had incurred and %ill incur to &inish the pro4ect$
- Filinvest submitted its claim a)ainst de&endant Philam)en under its per&ormance and )uarantee bond but Philam)en re&used
to ac3no%led)e its liability &or the simple reason that its principal! de&endant Paci&ic! re&used to ac3no%led)e liability there&ore$
o 5'F'1.' 6F PAC#F#C
Paci&ic claims that its &ailure to &inish the contracted %or3 %as due to inclement %eather and the &act that
several items o& &inished %or3 and chan)e order %hich plainti&& re&used to accept and pay &or caused the
disruption o& %or3$ .ince the contractual relation bet%een plainti&& and de&endant Paci&ic created a reciprocal
obli)ation! the &ailure o& the plainti&& to pay its pro)ressin) bills estops it &rom demandin) &ul&illment o& %hat is
incumbent upon de&endant Paci&ic$
the unilateral and voluntary action o& plainti&& in preventin) de&endant Paci&ic &rom completin) the %or3 has
relieved the latter &rom the obli)ation o& completin) the same$
o 5'F'1.' 6F P7#"A80'1 #1.9:A1C'
the various amendments made on the principal contract and the deviations in the implementation thereo&
%hich %ere resorted to by plainti&& and co;de&endant Paci&ic %ithout its *de&endant Philam)en<s+ %ritten
consent thereto! have automatically released the latter &rom any or all liability %ithin the purvie% and
contemplation o& the covera)e o& the surety bonds it has issued$
- /ased on the billin)s o& de&endant Paci&ic and the payments made by plainti&&! the %or3 accomplished by the &ormer amounted
to P11!7!22$=> %ith the e2ception o& the last billin) *%hich %as not acted upon or processed by plainti&&+ in the amount o&
P==!?96$=2$ The total amount o& %or3 le&t to be accomplished by plainti&& %as based on the ori)inal contract amount less
value o& %or3 accomplished by de&endant Paci&ic in the amount o& P61!717$@$ additional %or3 done by de&endant Paci&ic in
the amount o& P=77!>>>$>> to be in order$
- #n resolvin) this case! the court observes that the appointment o& a Commissioner %as a 4oint underta3in) amon) the parties$
The &indin)s o& &acts o& the Commissioner should there&ore not only be conclusive but &inal amon) the parties$ The court
there&ore a)rees %ith the commissioner<s &indin)s %ith respect to
- 1$ Cost to repair de&iciency or de&ect A P@?2!?2=$>2
- 2$ 9npaid balance o& %or3 done by de&endant A P1!9?9!191$67
- ?$ Additional %or3Bchan)e order *due to de&endant+ A P=7@!>>>$>>
- The unpaid balance due de&endant there&ore is P1!9?9!191$67$ To this amount should be added additional %or3 per&ormed by
de&endant at plainti&&<s instance in the sum o& P=7@!>>>$>>$ And &rom this total o& P2!=1=!191$67 should be deducted the sum
o& P@?2!?2=$>1 %hich is the cost to repair the de&iciency or de&ect in the %or3 done by de&endant$ The commissioner arrived at
the &i)ure o& P@?2!?2=$>1 by )ettin) the avera)e bet%een plainti&&<s claim o& P7@!>>$?7 and de&endant<s alle)ation o&
P?>6!@67$67$ The amount due to de&endant per the commissioner<s report is there&ore P1!1!67$66$
- 5e&endant Paci&ic there&ore became liable &or delay %hen it did not &inish the pro4ect on the date a)reed on 6ctober 1@! 1979$
The court ho%ever! &inds the claim o& P?!99>!>>>$>> in the &orm o& penalty by reason o& delay *P1@!>>>$>>Bday &rom April 2@!
1979 to Jan$ 1@! 19>+ to be e2cessive$ A &or&eiture o& the amount due de&endant &rom plainti&& appears to be a reasonable
penalty &or the delay in &inishin) the pro4ect considerin) the amount o& %or3 already per&ormed and the &act that plainti&&
consented to three prior e2tensions$
- :TC 5#.8#..'5 P'T#T#61 /C F#"#1D'.T
- CA AFF#:8'5
Issue:
- %hether or not the li(uidated dama)es a)reed upon by the parties should be reduced considerin) that:
o *a+ time is o& the essence o& the contractE
o *b+ the li(uidated dama)es %as &i2ed by the parties to serve not only as penalty in case Pecorp &ails to &ul&ill its
obli)ation on time! but also as indemnity &or actual and anticipated dama)es %hich Filinvest may su&&er by reason o&
such &ailureE and
o *c+ the total li(uidated dama)es sou)ht is only ?2F o& the total contract price! and the same %as &reely and
voluntarily a)reed upon by the parties$
Held;
- /y assi)nin) only one le)al issue! Filinvest has e&&ectively cordoned o&& any discussion into the &actual issue raised be&ore the
Court o& Appeals$ 6 #n e&&ect! Filinvest has yielded to the decision o& the Court o& Appeals! a&&irmin) that o& the trial court! in
de&errin) to the &actual &indin)s o& the commissioner assi)ned to the parties< case$
o Thus! #T #. .'TT"'5 T7AT T7' A/6D'8'1T#61'5 F#09:'. /C T7' C69:T C688#..#61': #. A0:''5
9P61 /C F#"#1D'.T A. A FACT
- Filinvest ar)ues that the penalty in its entirety should be respected as it %as a product o& mutual a)reement and it represents
only ?2F o& the P12!=7>!>>>$>> contract price! thus! not shoc3in) and unconscionable under the circumstances$ 8oreover!
the penalty %as &i2ed to provide &or actual or anticipated li(uidated dama)es and not simply to ensure compliance %ith the
terms o& the contract
- There is no question that the penalty of P15,000.00 per day of delay was utually a!reed upon "y the parties and that
the sae is sanctioned "y law. A penal clause is an accessory underta3in) to assume )reater liability in case o& breach$ 1>
#t is attached to an obli)ation in order to insure per&ormance 11 and has a double &unction: *1+ to provide &or li(uidated
dama)es! and *2+ to stren)then the coercive &orce o& the obli)ation by the threat o& )reater responsibility in the event o&
breach$ 12 Article 1226 o& the Civil Code states:
o #rt. 1$$%. In o"li!ations with a penal clause, the penalty shall su"stitute the indenity for daa!es
and the payent of interests in case of noncopliance, if there is no stipulation to the contrary.
&e'ertheless, daa!es shall "e paid if the o"li!or refuses to pay the penalty or is !uilty of fraud in the
fulfillent of the o"li!ation.
- FI(I&)*+T ,-&T*&.+ TH#T TH* P*&#( ,(#/+* 0#+ T- P1-)I.* for payent of actual anticipated and
liquidated daa!es rather than the penali2ation of a "reach of the contract. Thus, Filin'est ar!ues that had Pecorp
copleted the pro3ect on tie, it 4Filin'est5 could ha'e sold the lots sooner and earned its pro3ected incoe that
would ha'e "een used for its other pro3ects.
- n herein case, there has "een su"stantial copliance in !ood faith on the part of Pecorp which renders
unconsciona"le the application of the full force of the penalty especially if we consider that in 1676 the aount of
P15,000.00 as penalty for delay per day was quite steep indeed. &othin! in the records su!!ests that Pecorp8s delay
in the perforance of 5.97: of the contract was due to it ha'in! acted ne!li!ently or in "ad faith. Finally, we factor in
the fact that Filin'est is not free of "lae either as it li;ewise failed to do that which was incu"ent upon it, i.e., it
failed to pay Pecorp for wor; actually perfored "y the latter in the total aount of P1,<<1,<%7.%%. Thus, all thin!s
considered, we find no re'ersi"le error in the ,ourt of #ppeals8 e=ercise of discretion in the instant case.
,# .*,I+I-& I+ #FFI1>*.