FILINVEST LAND, INC., petitioner,
vs. THE HONORABLE COURT OF APPEALS, PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY and PACIFIC EQUIPMENT CORPORATION, respondents.
[G.R. No. 138980. September 20, 2005]
Petitioner awarded to respondent Pacific Equipment Corp (Pecorp) development of its residential subdivisions, a contract amounting to P12,470,000.00. Pecorp posted two surety bonds to guarantee faithful compliance. Both agreed that liquidated damages of P15,000/day shall be paid by Pecorp in case of delay. Petitioner claimed that Pecorp failed to complete the works (94.53%) and claims for damages. Pecorp on the other hand contended that their work stopped due to failure of petitioner to pay for certain completed portion. RTC assigned a commissioner to evaluate the claims and counter-claims. The total amount due to Pecorp was computed to be P1,881,867.66. Petitioner claimed that liquidated damages amounted to P3,990,000.00 Both claims and counter-claims were dismissed. Court of Appeals affirmed the ruling of RTC.
Whether or not the penalty (liquidated damages) of P15,000.00 per day of delay shall be binding upon mutual agreement of parties.
NO. As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable (Art.1229, NCC). A penalty interest of P15,000.00 per day of delay as liquidated damages or P3,990,000.00 (representing 32% penalty of the P12,470,000.00 contract price) is unconscionable considering that the construction was already not far from completion.