LIQUIDATED DAMAGES

Atlantic Erectors v. Herbal Cove

- DOCTRINE: Liquidated damages 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.
- Herbal Cove contracted with Atlantic Erectors to build a subdivision project for P16.7M and to finish building
within 180 days.
- To secure payment in case of non-completion of the project, the contract provides:

- Atlantic failed to deliver and Herbal cove terminated the contract and demanded liquidated damages.
- SC HELD that liquidated damages are proper as stipulated in the contract that it shall be paid to the owner
upon delay of completion, delivery or acceptance of said works, in accordance with Art 2226.

TITAN CONSTRUCTION CORP v. UNI-FIELD ENTERPRISES

- DOCTRINE: The law allows parties to a contract to stipulate on liquidated damages to be paid in case of
breach.
a. liquidated damages is a penalty clause where the obligor assumes a greater liaiblity in case of breach,
b. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the
measure of damages caused by the breach,
c. Article 1229 and 2227 of the NCC empowers the court to reduce the penalty if it is unconscionable or
iniquitous. The reduction is at the discretion of the court and depends on several factors such as the type,
extent, and purpose of the penalty.. The nature of the obligation and the mode of its breach and its
consequences.
- Petitioner Construction company procured from Respondent Supplier construction supplies and materials
amounting to P7.6M.
- Petitioner was only able to pay P6.2M and despite demands to settle the balance, the Petitioner failed to pay.
- Petitioner appealed to the CA and argued that the award of liquidated damages was without legal basis as
a. they were based only the delivery receipts and sales invoices, and not on any other
contract, and that the same were not formally offered as evidence and
b. were by the nature contracts of adhesion which left them no choice but to accept the
conditions provided.
- SC affirmed CA: that if damages alleged are not liquidated or stipulated then they are deemed admitted
when not specifically denied.

EXEMPLARY DAMAGES

CIVIL AERONAUTICS ADMINISTRATION V. CA

- DOCTRINE: For exemplary damages, Art. 2229 and 2231 serves as legal basis:
Art. 2229: Exemplary or corrective damages are imposed, by ways of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2231: In quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.
 - Ernest Simke, was honorary consul general of Israel in the Philippines at the time of the incident.
- He had gone to Manila International Airport to meet his future son-in-law and decided to proceed to the
viewing deck to get a better view
- Simke Slipped over an elevation of 4 inches at height and fell on his back and broke his thigh bone. He
needed to get surgery afterwards
- SC Held: CAA is liable for damages
- The inclination that respondent slipped on, was deemed an architectural anomaly for it was neither a
ramp (it couldn’t prevent people from sliding) nor a step (people couldn’t use it as a step). Given RA 776
which charged CAA with the duty of planning, designing, constructing, equipping, expanding, improving,
repairing or altering aerodomes, it was duty-bound to exercise due diligence in the overseeing of the
construction and maintenance of the viewing deck.
- EXEMPLARY DAMAGES: Note from the facts that there was failure on the part of CAA to remedy the
dangerous condition of the questioned election or even post a warning sign for the public. This wanton
disregard by the CAA of the safety of the people using the viewing deck, who are charged with an
admission fee and are entitled to expect a properly maintained facility, justifies the award of exemplary
damages.

SPS TIMADO v. RURAL BANK OF SAN JOSE

- DOCTRINE: Exemplary damages are awarded only in addition to compensatory damages, and since moral
damages are not awarded, exemplary damages too must be deleted for lack of legal basis.
- Petitioner sps obtained a loan from Rural Bank of San Jose. They executed REM and CM as security for the
loan.
- When they failed to pay their amort, the bank informed them of its intention to foreclose the mortgages.
- The petitioners prayed for TRO.
- RTC awarded moral and exemplary damages to the respondent bank
- CA deleted moral damages and reduced the amount of exemplary
- SC Held: that exemplary damages is not proper to award in this case since moral damages is not awarded,
hence, there is no legal basis.

OCTOT v. YBAÑEZ
- DOCTRINE: CONDITIONS TO AWARD EXEMPLARY DAMAGES:
1. Imposed by way of example or correction only, in addition to compensatory damages, and cannot be
awarded as a matter of right. The determination depends upon the amount of compensatory damages
awarded to the defendant.
2. Claimant must first establish the right to moral, temperate, liquidated, or compensatory damages.
3. Wrongful act must be accompanied by bad faith; award would only be allowed if the party acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
- Petitioner Octot was employed as a Security Guard in Regional Health Office of Cebu.
- He was dismissed for being convicted of libel charges and being notoriously undesirable.
- Despite his dismissal, he continued reporting for work for a whole month but the RD refused to release his
salary.
- Petitioner was acquitted of the libel case so he sought the assistance of USEC of justice to reinstate the
petitioner.
- The Court directed respondent public officials to immediately reinstate petitioner.
- The issue is WON the petitioner is entitled to claim backwages and damages.
- The Court held that the petitioner is not entitled to backwages as the respondent officials did not act In
bad faith.
- Claim for damages shall therefore be denied.
- EXEMPLARY DAMAGES: generally, these are not recoverable in mandamus unless the defendant acted
with vindictiveness or wantonness instead of honest judgment. It must also presuppose the existence of
the enumerations in Arts. 2231 and 2232. These are imposed by way of example or correction for the
public good, in addition to moral, temperate, or compensatory damages, and are required by public
policy, for wanton acts must be suppressed.
MENDOZA v. SPS. GOMEZ
- DOCTRINE: Exemplary damages: Imposed to set an example in addition to compensatory damages.
▪ Requisites: imposed to set an example and not as a matter of plaintiff’s right, claimant must first
establish right to moral/ compensatory/ temperate/liquidated damages, wrongful act accompanied by
bad faith or wanton recklessness.
▪ Can be awarded. may be granted according to Arts. 2229 (to set an example for public good) and 2231
(defendant acted with gross negligence).
▪ Mendoza's act of intruding into the land rightfully occupied by the Isuzu truck shows his reckless
disregard for safety.
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