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R.S. TOMAS, INC. v. RIZAL CEMENT COMPANY, INC. reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to
G.R. No. 173155 perform any promise which forms the whole or part of the contract.
DATE: March 21, 2012
By: GARCIA Petitioner was held liable for liquidated damages since it bound itself to complete the project for a
Topic: Characteristics certain period however failed to do so, prompting the respondent to engage the services of another
Petitioner: R.S. Tomas, Inc. contractor. In awarding the liquidated damages the Supreme Court applied the general rule not to ignore
Respondent: Rizal Cement Company, Inc. the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not

Ponente: Peralta, J. contrary to law, morals, good customs, public order or public policy. Thus, as agreed upon by the parties,
the Court applied the 10% liquidated damages.
DOCTRINE: A party to a contract shall have the right to terminate such contract by serving the other
party a written notice if there is a breach in the performance of the contract. Parties are free to Considering that petitioner was already in delay and in breach of contract, it is liable for damages that
stipulate as far as it is consciounable and not against morals and public policy as to the terms of the are the natural and probable consequences of its breach of obligation.
contract and payment for damages specifically in cases of breach. Delay and breach of contract may
give rise to damages that are the natural and probable consequences of such breach of obligation.

FACTS: Respondent Rizal Cement and petitioner RS Tomas, entered into a contract for the supply of
labor, materials, and technical supervision of the 3 construction/electrical installation project.
Respondent agreed to pay 2.9M in consideration of the performance of the job orders and petitinoer
agreed to complete the porjects within 120 days from the effectivity of the contract. Payment for
liquidated damages amounting to 29k per day was agreed upon by the parties for ecery day of delay in
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the completion of the project. Petitioner also obtained a performance bond from a 3 party insurance
company to secure the performance of the obligaiton.

Petitioner requested for an extension of 75 days because of the need to import some materials needed
and they also asked for a price adjustment of some materials. Petitioner once again asked for a 75-day
extension for failure of its supplier to deliver some materials. Respondent informed the petitioner that it
already defaulted for its obligation having failed to complete the projects from the effectivity of the
contract. Respondent notified petitioner that the former was termination the contract, demanded the
refund the amount already paid with the threat of filing an action. Respondent demanded for the
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payment of the perforamnce bond against the 3 party insurance. Afterwhich respondent entered in two
contracts with another company, Geostar Philippines for the completion of the project. Respondent
pointed out to petitioner the impossibility of an amicable settlement.

ISSUE: (1) Whether petitioner should be held liable for damages arising from breach of contract for
failure to perform its obligation arising out from the contract with respondents.
(2) Whether petitioner and Respondent are free to stipulate as regards the amount of damages in cases
of delay in the perforamance of the contract.


HELD: YES.

RULING: As agreed upon by the parties, the projects were to be completed within 120 days from the
effectivity of the contract. The Supreme Court also held that respondents cannot be held responsible for
the alleged misrepresentation raised by the petitioner as to the condition of the transformer to be fixed
under the job order. Records show that petitioner indeed asked for price adjustment and extension of
time within which to complete the projects. Petitioner justified its inability to complete the projects
within the stipulated period on the alleged unavailability of the materials to be used to perform the
projects as stated in the job order and not because the defects were worse than what was presented by
the respondent. In other words, there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true condition of the subject transformer.

The Supreme Court found that there was not only delay but non-completion of projects undertaken by
the petitioner without justifiable ground. Breach of contract is defined as the failure without legal