Sunday, April 22, 2012

Breach of contract and damages. - G.R. No. 173155

G.R. No. 173155

"x x x.

In sum, the evidence presented by the parties lead to the following conclusions: (1) that the projects were not completed by petitioner; (2) that petitioner was given the opportunity to inspect the subject transformer; (3) that petitioner failed to thoroughly study the entirety of the projects before it offered its bid; (4) that petitioner failed to complete the projects because of the unavailability of the required materials and that petitioner needed financial assistance; (5) that the evidence presented by petitioner were inadequate to prove that the subject transformer could no longer be repaired; and (6) that there was no evidence to show that respondent was in bad faith, acted fraudulently, or guilty of deceit and misrepresentation in dealing with petitioner.

In view of the foregoing disquisitions, we find that there was not only delay but non-completion of the projects undertaken by petitioner without justifiable ground. Undoubtedly, petitioner is guilty of breach of contract.  Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract.[64] In the present case, petitioner did not complete the projects. This gives respondent the right to terminate the contract by serving petitioner a written notice.  The contract specifically stated that it may be terminated for any of the following causes:

1.      Violation by Contractor of the terms and conditions of this Contract;

2.      Non-completion of the Work within the time agreed upon, or upon the expiration of extension agreed upon;

3.      Institution of insolvency or receivership proceedings involving Contractor; and

4.      Other causes provided by law applicable to this contract.[65]

Consequently, and pursuant to the agreement of the parties,[66] petitioner is liable for liquidated damages in the amount of P29,440.00 per day of delay, which shall be limited to a maximum of 10% of the project cost or P294,400.00. In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. However, petitioner failed to fulfill the same prompting respondent to engage the services of another contractor on November 14, 1991. Thus, despite the lapse of eleven months from the time of the effectivity of the contract entered into between respondent and petitioner, the latter had not completed the projects. Undoubtedly, petitioner may be held to answer for liquidated damages in its maximum amount which is 10% of the contract price. While we have reduced the amount of liquidated damages in some cases,[67] because of partial fulfillment of the contract and/or the amount is unconscionable, we do not find the same to be applicable in this case. It must be recalled that the contract entered into by petitioner consists of three projects, all of which were not completed by petitioner. Moreover, the percentage of work accomplishment was not adequately shown by petitioner. Hence, we apply the general rule not 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.[68] Thus, as agreed upon by the parties, we apply the 10% liquidated damages.  

          Considering that petitioner was already in delay and in breach of contract, it is liable for damages that are the natural and probable consequences of its breach of obligation.[69] Since advanced payments had been made by respondent, petitioner is bound to return the excess vis-à-vis its work accomplishments. In order to finish the projects, respondent had to contract the services of another contractor. We, therefore, find no reason to depart from the CA conclusion requiring the return of the excess payments as well as the payment of the cost of contracting Geostar, in addition to liquidated damages.[70]

x x x."