a. Breaches of Obligations; Remedies

Remedy to which the Guarantor is Entitled

The guarantor cannot demand reimbursement for indemnity when he has not paid the obligation.

Rights of a Creditor in an Obligation To Do or Not To Do

• To do (Positive Personal)
• The obligee is entitled to have the thing done in a proper manner, by himself or by a third person, at the expense of the obligor;
• To demand what has been poorly done be undone;
• To recover damages because of breach of the obligation. (CIVIL CODE, art. 1167)
• Not to do (Negative Personal)
• To have the thing undone at the expense of the obligor; and/or
• To ask for damages. (CIVIL CODE, art. 1168)

NOTE: The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095) (CIVIL CODE, art. 1164)

In Case of Breach

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand. [Art. 2041, CC]

Trigger: One of the parties fails or refuses to abide by the compromise agreement

Effect: The innocent party may either:

• Demand specific performance of the compromise agreement.
• Rescind the compromise agreement and insist upon the original demand.

The innocent party need not seek a judicial declaration of rescission, for he may ‘regard’ the compromise agreement already ‘rescinded’ [Sonley v. Anchor Savings Bank/ Equicom Savings Bank, G.R. No. 205623 (2016)]

Breaches of Obligations

Causes of Breach

• Incidental Fraud (Dolo incidente)
• Negligence (Culpa)
• Default / Delay (Mora)
• Contravention of Terms (CIVIL CODE, art. 1170)

There is breach when the obligor fails without legal excuse (such as fortuitous events) to perform any promise, which forms the whole or part of an obligation. (Spouses Hernandez-Guanio v. Makati Shangri-La Hotel and Resort, Inc., G.R. No. 190601; R.S. Tomas Inc. v. Rizal Cement Co. Inc., G.R. No.173155)

DEFAULT OR DELAY (MORA)

General rule. A person obliged to deliver or to do something incurs delay when the obligee judicially or extrajudicially demands performance. (Civil Code, Art. 1169)

Demand is unnecessary in these cases:

• The obligation or the law expressly dispenses with demand. For example, D promises to pay C ₱20,000 on or before November 30 without need of demand. If D does not pay on that date, D is in default under their stipulation. Taxes payable by a specified date may likewise incur penalties and surcharges without a government demand. A partner owes the fruits of a thing promised as a contribution from the time the thing should have been delivered, without need of demand. (De Leon 46–47 (2019))
• The designated time was a controlling reason for the obligation. Examples include balloons for a children’s party, a wedding dress for a scheduled wedding, money needed to pay debts due on the same date, and a car needed for a trip at a particular time. (Civil Code, Art. 1169; De Leon 47 (2019))
• Demand would be useless because the obligor has made performance impossible. Suppose S must deliver a specific horse to B on December 5, but the horse dies on December 2 through S’s negligence or deliberate act, or through a fortuitous event for which S expressly assumed responsibility. A December 5 demand cannot secure delivery. Demand is also unnecessary where it would plainly be unavailing, such as after S’s absolute refusal or manifestation of an intent not to comply. (Civil Code, Arts. 1169, 1174; De Leon 48–49 (2019); see 13 C.J. 661)

Requisites for delay. The obligation must be demandable, the debtor must fail to perform when due, and the creditor must make a judicial or extrajudicial demand, unless demand is unnecessary under an exception. (Civil Code, Art. 1169)

Reciprocal obligations. Neither party incurs delay while the other has not complied or is not ready to comply properly. Once one party performs, delay by the other begins. (Civil Code, Art. 1169)

A fixed period alone does not necessarily dispense with demand; apply the exceptions under Article 1169. In reciprocal obligations, once one party fulfills its obligation, delay by the other begins. Whether rescission is warranted must be assessed separately under Article 1191. (Civil Code, Arts. 1169, 1191) (Solar Harvest v. Davao Corrugated Carton Corporation, G.R. No. 176868, July 26, 2010)

The power to rescind is implied in reciprocal obligations. Rescission under Article 1191 may be exercised extrajudicially without a prior judicial decree, even without an express stipulation, but the party exercising it acts at its own risk: if the rescission is disputed, a court may subsequently determine its propriety. (Nissan Car Lease Phils., Inc. v. Lica Management, Inc., G.R. No. 176986, January 13, 2016)

Using a credit card for a purchase is an offer to the issuer to enter into a loan agreement. Until the issuer accepts, no loan obligation exists between the issuer and the cardholder; a demand presupposes an existing obligation. (Pantaleon v. American Express International, Inc., G.R. No. 174269)

A contractual statement that a project is “estimated to be completed in 6 years” does not make the obligor’s failure to finish within six years a delay. An estimate is not a fixed period or a day certain. (Salonte v. COA, et al., G.R. No. 207348)

CONTRAVENTION OF THE TENOR OF THE OBLIGATION

This refers to failure to comply with the terms of the obligation, and is itself a ground for liability for damages under Article 1170, subject to applicable defenses.

Defense against breach: FORTUITOUS EVENTS generally excuse liability, except when liability is imposed by law or stipulation or the nature of the obligation requires assumption of the risk under Article 1174.

Remedies Available to Creditor in Cases of Breach (part 1 of 2)

• Specific Performance – requiring delivery or performance of the obligation.

Can be combined with damages, but inconsistent with the remedy of resolution or cancellation. (Magdalena Estate, Inc. v. Myrick, G.R. No. L-47774)

Can be pursued successively (but not simultaneously) with resolution or cancellation; if the injured party first chooses fulfillment, the party may subsequently seek rescission if fulfillment becomes impossible. (CIVIL CODE, art. 1191)

This is NOT a remedy in an obligation “Not to do” that has been breached since the prohibited act has been done. (DE LEON 44 (2014))

• Damages – may be claimed for a breach giving rise to liability under Civil Code Article 1170; in reciprocal obligations, they may accompany fulfillment or rescission under Article 1191. (CIVIL CODE, arts. 1170 and 1191)
• Substitute performance – ask others to perform and charge the cost to the obligor (CIVIL CODE, arts. 1165-1168)

Not available in:

• Obligation to give specific things (already set apart from class or genus to which it belongs); (CIVIL CODE, art. 1165)
• Obligations not to do; (CIVIL CODE, art. 1168) and
• Obligations to do which are purely personal in character.
• Resolution/Cancellation – implied in reciprocal obligations, but not available if the breach is slight, unless time is of the essence. (Biando v. Embestro, G.R. No. L11919) If breach is only slight, generally courts will grant additional time for the obligor to pay or perform and after this additional time, if obligor still does not perform, courts will allow resolution or cancellation. (CIVIL CODE, art. 1191; Kapisanan Banahaw v. Dejarme, G.R. No. L32908, Nov. 28, 1930) The principle is that resolution will not be permitted for a slight or casual breach of a contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in entering into the agreement. (Multinational v. Ara Security, 441 SCRA 126 (2004))

Remedy Specific only to Obligations Not to Do: to compel that the act in violation of the obligation to be undone if possible and if not, only damages may be pursued. (CIVIL CODE, art. 1168)

Different Kinds of Obligations – Civil Code, arts. 1179-1230

CHAPTER 3

Different Kinds of Obligations

SECTION 1

Pure and Conditional Obligations

Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113)

Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)

Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117)

Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a)

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)

Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123)

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

SECTION 2

Obligations with a Period

Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a)

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. (n)

Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)

Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127)

Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a)

Article 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has promised;

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

(5) When the debtor attempts to abscond. (1129a)

SECTION 3

Alternative Obligations

ARTICLE 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)

Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

Article 1201. The choice shall produce no effect except from the time it has been communicated. (1133)

Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)

Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages;

(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a)

Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n)

SECTION 4

Joint and Solidary Obligations

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a)

Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139)

Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)

Article 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140)

Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a)

Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)

Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Substantial performance

When an obligor substantially performs an obligation in good faith, the obligor may recover as if performance were complete, subject to a deduction for the obligee’s damages. Those damages include the deficiency the obligee remains entitled to collect. A slight breach does not justify rescission or cancellation. Where rescission is otherwise warranted, the court may fix a period instead if there is just cause. (Civil Code, art. 1191) (Civil Code, art. 1234; 4 Tolentino 277 (1991))

Substantial performance may apply when the obligor has, in good faith, performed the contract’s material requirements despite a minor deficiency. The remaining defect must be technical or minor, cause no serious harm to the obligee, and not defeat the parties’ intended purpose. (International Hotel Corporation v. Joaquin Jr., G.R. No. 158361)

Requisites of substantial performance:

• The obligor attempted performance in good faith, without a willful or intentional departure from the contract.
• The deviation was slight.
• The omission or defect was technical or unimportant.
• The deviation was not so material that the parties’ intended purpose was defeated. (International Hotel Corporation v. Joaquin Jr., G.R. No. 158361)