Liquidated Damages

Question 1

What are liquidated damages?

Answer 1

Liquidated damages are those agreed upon
by the parties to a contract, to be paid in case of breach
thereof.

Question 2

What is the nature of liquidated damages?

Answer 2

In effect, “liquidated damages” and “penalty” are the same.
Neither requires proof of actual damages. (Lambert v. Fox, 26
Phil. 588). After all, they had been previously agreed upon.

Question 3

Can liquidated damages be reduced?

Answer 3

Yes. Liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable. Art. 2227

Question 4

What is the reason of equitable reduction of liquidated damages?

Answer 4

Liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable

Question 5

What is the Effect of Partial or Irregular Performance

Answer 5

Under Art. 2227, liquidated damages shall be reduced
if iniquitous or unconscionable. Now then, suppose there
has been partial or irregular performance, can there also be
reduction?
HELD: Yes, because the fundamental rules governing
“liquidated damages” and “a penalty clause” are the same.
Moreover, the liquidated damages are presumed to be only
for a total breach. Therefore, if out of 500 television sets to
be delivered, 63 only are given, there can be a reduction in
the amount of liquidated damages. (Joe’s Electrical Supply v.
Alto Electronics, L-12376, Aug. 22, 1958).

Question 6

What is the rule if breach was not contemplated in the agreement of liquidated damages?

Answer 6

Art. 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 shall determine
the measure of damages, and not the stipulation.