Short answer. Yes, in effect. Article 1725 lets the owner withdraw at will from the work, but only on condition of indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages. That final word, damages, is what covers the profit the contractor loses when you call the job off.
What the law says
The owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages.
Civil Code, Article 1725 — Owner's Right to Withdraw. Read the full provision →
The price of calling it off
Article 1725 gives the owner a strong right and attaches a clear cost to it: the owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages. You do not need the contractor's fault or consent to stop the job, since the right is at will. But the law does not let you stop for free. In exchange for that freedom you must make the contractor whole, and the article lists four heads of indemnity, ending with the open word 'damages'.
What 'damages' adds to expenses
If the owner only had to repay expenses and pay for work done, the contractor would be left having lost the bargain entirely, bearing all the risk of your change of mind and none of the reward. The separate mention of damages, after expenses, work and usefulness are already listed, is what fills that gap. It is generally understood to include the profit the contractor would have earned had the job run to completion. So calling off the work does not merely reset the contractor to break-even; it can require you to pay what they would have gained, precisely because you exercised a right the contractor could not refuse.
The limits on the right and the bill
The right is powerful but not lawless. It is a right to withdraw, to stop the construction, not a tool to escape paying for benefits you keep; the usefulness the owner may obtain is expressly your charge. The indemnity is measured, not punitive: it compensates the contractor's real loss, so a contractor who is freed to take other work, or who saves costs by stopping, may see the recoverable amount reduced accordingly. And this concerns the owner's own decision to withdraw; where the stoppage is instead due to the contractor's fault, a different balance between the parties applies.
Before you pull the plug
Because the exposure includes lost profit, the decision to withdraw is best made with the numbers in front of you: what has been spent, what work stands to your benefit, and what the contractor stood to earn. Keep the contract, the progress records and the correspondence, since the indemnity is calculated on them. A negotiated termination can sometimes cost less than the full statutory bill, because the parties can agree how to value the unfinished work. What you cannot do is treat withdrawal as cost-free, since the same article that grants the freedom prices it, and the price can reach the contractor's expected profit.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- National Power Corp. vs. Court of Appeals, et al, G.R. No. 107631, February 26, 1996 — read the decision on LawPhil →