Liquidated Damages

Art. 2226. Liquidated damages are those agreed upon by

the parties to a contract, to be paid in case of breach
thereof.

Art. 2227. Liquidated damages, whether intended as an

indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.
 It differs from a penal clause in that in the latter case
the amount agreed to be paid may bear no relation to
the probable damages resulting from the breach.
 REQUISITES AND
CHARACTERISTICS

(1) Liquidated damages must be validly stipulated.

(2) There is no need to prove the amount of actual
damages.
(3) Breach of the principal contract must be proved.
 RULES GOVERNING BREACH OF
CONTRACT
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.
General Rule: The penalty shall substitute the indemnity for
damages and the payment of the interests in case of breach.

Exceptions :
(1) When there is a stipulation to the contrary.
(2) When the obligor is sued for refusal to pay the agreed penalty.
(3) When the obligor is guilty of fraud.

The amount can be reduced if:

(1) It is unconscionable as determined by the court.
(2) There is partial or irregular performance.