Philippine Economic Zone Authority v. Pilhino Sales Corporation

Summary

PEZA contracted with Pilhino for delivery of two fire trucks within 45 days at P2,900,000 each, with penalty clause of 1/10 of 1% per day of delay. When Pilhino failed to deliver, PEZA sued for rescission and damages. The Supreme Court established the principle that contractually stipulated liquidated damages survive contract rescission under Article 1191 of the Civil Code. The Court rejected the argument that rescission automatically negates liquidated damage clauses, emphasizing that Article 1191 expressly provides for damages 'in either case' of fulfillment or rescission. The decision reinforced that parties cannot escape contractual penalties through their own breach, preventing delinquency from becoming profitable. The Court also ruled that belated attempts at rectification after litigation has commenced cannot justify reduction of agreed liquidated damages.