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[55] Titan Construction Corp v. Uni-Field Enterprises, Inc.

G.R. No. 153874 | March 1, 2007 | Carpio, J. Issue/Ratio:


W/N there was legal basis for the award of liquidated damages, attorney’s fees, and
Summary: Titan bought construction materials from Uni-Field but was not able to pay interest to Uni-Field - YES.
the whole amount so the latter filed a complaint for collection of sum of money with
damages. The TC, affirmed by CA, awarded liquidated damages, attorney’s fees, and ● The delivery receipts and sales invoices formed part of petitioner's formal
interests. This was disputed by Titan on the ground that it has no legal basis but the offer of evidence.
Sc affirmed the decision because the damages were stipulated in the receipts and ● The delivery receipts and sales invoices expressly stipulated the payment of
sales invoices. interest, liquidated damages, and attorney's fees in case of overdue
accounts and collection suits. Petitioner did not only bind itself to pay the
Doctrine: A stipulation on liquidated damages is a penalty clause where the obligor principal amount, it also promised to pay (1) interest of 24% per annum on
assumes a greater liability in case of breach of an obligation. The obligor is bound to overdue accounts, compounded with the principal obligations as they
pay the stipulated amount without need for proof on the existence and on the accrue; (2) 25% liquidated damages based on the outstanding total
measure of damages caused by the breach. obligation; and (3) 25% attorney's fees based on the total claim including
liquidated damages.
Provisions: ● Since petitioner freely entered into the contract, the stipulations in the
Article 2226. Liquidated damages are those agreed upon by the parties to a contract, contract are binding on petitioner.
to be paid in case of breach thereof.
Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, On the claim of petitioner that the receipts and sales invoices are in the nature of
shall be equitably reduced if they are iniquitous or unconscionable. contracts of adhesion:
Article 2228. When the breach of the contract committed by the defendant is not the
one contemplated by the parties in agreeing upon the liquidated damages, the law ● Considering that petitioner and respondent have been doing business from
shall determine the measure of damages, and not the stipulation. 1990 to 1993 and that petitioner is not a small time construction company,
petitioner is "presumed to have full knowledge and to have acted with due
Facts: care or, at the very least, to have been aware of the terms and conditions of
the contract."
● Titan Construction is engaged in the construction business, while Uni-Field ● Titan was free to contract the services of another supplier if Unifield’s terms
is engaged in the business of selling various construction materials. were unacceptable. It also failed to show that it was the weaker party or that
● From 1990-1993, Titan purchased various construction supplies from Uni- it was compelled to accept the terms imposed by Unifield.
Field amounting to Php 7,620,433.12 but was only able to pay
P6,215,795.70. Uni-Field sent a demand letter but the balance of Php ● However the Court reduces the amount of attorney’s fees.
1,404,637.42 remained unpaid. ○ [T]he attorney's fees here are in the nature of liquidated damages
● Uni-Field then filed with the TC a complaint for collection of sum of money and the stipulation therefor is aptly called a penal clause. It has
with damages against Titan. The latter did not deny the purchase. been said that so long as such stipulation does not contravene law,
● TC ruled in favor of Uni-Field ordering Titan to pay the following: morals, or public order, it is strictly binding upon defendant. The
○ The principal amount of P1,404,114.00; attorney's fees so provided are awarded in favor of the litigant, not
○ Interest Charges in the amount of P504,114.00 plus accrued his counsel. (Barons Marketing Corp. v. CA)
interest charges at 24% per annum compounded yearly reckoned ○ On the other hand, a stipulation on liquidated damages is a penalty
from July, 1995 up to the time of full payment; clause where the obligor assumes a greater liability in case of
○ Liquidated Damages in the amount of P324,147.94; breach of an obligation. The obligor is bound to pay the stipulated
○ Attorney's Fees equivalent to 25% of whatever amount is due and amount without need for proof on the existence and on the
payable and accumulated appearance fees at P1,000.00 per measure of damages caused by the breach.
hearing; and ● Articles 1229 and 2227 of the Civil Code empower the courts to reduce the
○ Costs of suits. penalty if it is iniquitous or unconscionable.
● The CA affirmed the lower court’s decision.
● The award of attorney's fees "equivalent to 25% of whatever amount is due
and payable" is exorbitant because it includes (1) the principal of
P1,404,114.00; (2) the interest charges of P504,114.00 plus accrued interest
charges at 24% per annum compounded yearly reckoned from July 1995 up
to the time of full payment; and (3) liquidated damages of P324,147.94.
Moreover, the liquidated damages and attorney's fees serve the same
purpose, that is, as penalty for breach of the contract.
● Thus, the award of attorney’s fees is reduced to 25% of the principal
obligation.

Ruling: The ruling of the CA is affirmed with modification on the award of attorney’s
fees.

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