FILINVEST vs. CA

FILINVEST vs. CA
G.R. No. 115902. 27 Sept 1995.
Petition for certiorari to review the decision of the CA
Davide, Jr., J.:

Facts: On Aug 26, 1978 FILINVEST awarde to the defendant PACIFIC the development of the residential subdivision consisting of two lands located in Payatas, QC. PACIFIC issued two surety bonds issued by PHILAMGEN. PACIFIC failed to finish the contracted work, FILINVEST intends to take over the project and hold defendant liable for damages.
On October 26, plaintiff submitted its claim against PHILAMGEN under its performance and guarantee bond but PHILAMGEN refused to acknowledge its liability for the single reason that its principal, defendant pacific, refused to acknowledge liability therefore. Defendant said that the failure to finish the contracted work was due to the weather, and the grant of extension of the work is a waiver to claim any damages. PHILAMGEN contends that the various amendments made on the principal contract and the deviation in the implementation thereof which were resorted to by plaintiff and PACIFIC w/o its consent have automatically released the latter from any liability. The tc dismissed the complaint, basing on the commissioner report. CA affirmed.

Issue: WON the liquidated damages agrees upon by the parties should be reduced.

Held: Decision of CA AFFIRMED.

Ratio: Art. 1226 in obligations with a penal clause, the penalty of shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
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. But the courts may equitably reduce the penalty in two instances, first,if the principal obligation has been irregularly complied with and second, when it is iniquitous or unconscionable.

*Ash