1) What a “contract” is under Philippine law

In the Philippines, contracts are primarily governed by the Civil Code. A contract is a meeting of minds between parties where one binds himself to give something or to render some service in favor of another. Once perfected (i.e., once consent is reached on the object and cause), a contract becomes the law between the parties and must be complied with in good faith.

Essential requisites of a valid contract

A contract is generally valid if it has:

Consent (freely given; no fraud, intimidation, undue influence, or mistake that vitiates consent)
Object (a determinate thing or service that is lawful and possible)
Cause/consideration (the “why” of the obligation; must be lawful)

If any of these are missing (or the object/cause is illegal), what you have may be void, voidable, unenforceable, or rescissible—and that classification affects what “breach” means and what remedies are available.

2) What counts as “breach” (non-performance)

A breach of contract happens when a party fails, without lawful excuse, to perform what the contract requires—whether by doing nothing, doing it late, doing it poorly, or doing something prohibited.

Common forms:

Non-performance (total breach): complete failure to deliver goods/pay/perform services.
Delay (late performance): performance comes after the due date or beyond the agreed timeline.
Defective/partial performance: performance is made, but not in the manner/quality/quantity promised.
Violation of a negative obligation: doing what one promised not to do (e.g., a non-compete, exclusivity, confidentiality).
Anticipatory breach/repudiation: a party clearly indicates they will not perform when due (through words or conduct).

Breach vs. “non-liability” situations

Not all non-performance results in liability. A party may avoid liability if non-performance is due to:

Fortuitous event/force majeure (events beyond control that are unforeseeable or unavoidable, and that render performance impossible—subject to exceptions)
Creditor’s fault (e.g., refusal to accept delivery, failure to cooperate)
Invalid/void contract (there may be different remedies, like restitution, rather than “breach” damages)

3) The role of demand and “default” (mora)

Many remedies—especially damages for delay—depend on whether the breaching party is legally in default.

When demand matters

As a rule, delay begins after a demand (judicial or extrajudicial) unless demand is not required. Demand is typically done through a written demand letter (with proof of receipt) or by filing a case.

When demand is not required

Demand may be unnecessary when:

The obligation or contract expressly states that no demand is needed (e.g., “time is of the essence,” “automatic default” clauses)
The obligation’s nature shows time is essential (e.g., delivery for a scheduled event)
Demand would be useless (e.g., the obligor has made performance impossible)
The law so provides in particular contexts

Practical note: Even when demand may not be strictly required, sending a well-documented demand letter is often strategic: it clarifies breach, starts the paper trail, and supports claims for interest, penalties, and attorney’s fees (when recoverable).

4) Core legal remedies for breach (Philippine framework)

Remedy A — Specific Performance (Fulfillment)

If a party fails to perform, the aggrieved party may generally ask the court to compel performance.

How it works depends on the kind of obligation:

Obligation to give a determinate thing: compel delivery; plus damages for delay or deterioration if applicable.
Obligation to do: courts generally cannot force personal service in the sense of “making someone work,” but the law allows the act to be done at the debtor’s expense (or the court may order compliance where feasible).
Obligation not to do: the forbidden act may be ordered undone at the violator’s expense, if possible, plus damages.

Limits: If performance has become impossible (legally or physically), specific performance may be unavailable and the focus shifts to damages or other remedies.

Remedy B — Rescission (Resolution) under reciprocal obligations

For reciprocal obligations (where each party’s performance is the consideration for the other—typical in sales, leases, service agreements), the injured party may choose:

Fulfillment (insist on performance), or
Rescission/Resolution (treat the contract as undone), in either case with damages.

Rescission here is often called resolution: it is the remedy for breach in reciprocal contracts.

Key features

Usually requires judicial action (a court case), unless the contract validly allows extrajudicial rescission (a clause permitting unilateral cancellation/resolution upon breach). Even then, unilateral rescission can still be challenged in court—so documentation and fairness matter.
Requires that the breach be substantial (not merely trivial). Courts generally look at the contract’s purpose, the gravity of breach, and whether the injured party also performed or was ready to perform.
Often entails mutual restitution: each party returns what they received, with adjustments for use, benefits, deterioration, and equitable considerations.

Related doctrine: “Exceptio non adimpleti contractus”

If the other party has not performed, a party may, in many cases, refuse to perform their own obligation (e.g., withhold payment if the deliverables are not delivered), provided the refusal is proportionate and made in good faith.

Remedy C — Damages

Damages are the monetary consequences of breach. Philippine law recognizes multiple categories:

Actual/Compensatory Damages For proven losses (receipts, invoices, proven income loss). Must be established by competent evidence; speculative claims are generally disfavored.
Temperate (Moderate) Damages Awarded when a loss is real but the exact amount cannot be proved with certainty.
Nominal Damages Awarded to vindicate a right when a breach occurred but no substantial loss is proven.
Liquidated Damages A pre-agreed amount in the contract (e.g., “₱50,000 per day of delay” or “10% of contract price”). Courts may reduce unconscionable liquidated damages/penalties.
Moral Damages Generally not awarded for ordinary business breaches, but may be recoverable in specific circumstances (e.g., where the breach was attended by bad faith, fraud, or acts that cause mental anguish in contexts recognized by law and jurisprudence). This is fact-sensitive and not automatic.
Exemplary Damages Punitive in nature; may be awarded when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, usually as an addition to other damages.
Attorney’s Fees and Costs Not automatically recoverable. They may be awarded when:

There is a stipulation in the contract and it is reasonable, and/or
The case falls within recognized legal grounds (e.g., bad faith compelling litigation)

Interest (monetary obligations and damages)

Interest may be imposed:

As stipulated (subject to laws and principles against unconscionable rates)
As legal interest when appropriate (often in money judgments and damages, depending on the nature of the obligation and timing)

Because interest rules can be technical and depend on the nature of the claim (loan/forbearance vs. damages) and the date of judicial demand, parties typically compute interest carefully and plead it explicitly.

Remedy D — Cancellation/Termination based on contract terms

Many contracts include termination clauses:

Termination for convenience (rare in purely private bargains unless agreed)
Termination for cause (material breach, insolvency, prolonged force majeure, etc.)
Cure periods (e.g., “10 days to cure after notice”)
Step-in rights, suspension rights, set-off clauses

Philippine law generally respects these clauses if they are not illegal, contrary to morals/public policy, or grossly unfair. The safest termination is one that strictly follows:

the contract’s notice and cure procedure, and
fair dealing and good faith.

5) Penalty clauses and liquidated damages (and court reduction)

A penal clause (penalty for breach) or liquidated damages clause serves to:

Strengthen coercive force of the obligation
Fix damages in advance
Avoid difficult proof of actual losses

However, courts may equitably reduce penalties when:

There is partial or irregular performance
The penalty is iniquitous or unconscionable

Practice tip: If you plan to enforce a penalty clause, document the breach clearly and show why the penalty is proportionate to the harm and the contract’s risk allocation.

6) Defenses commonly raised in breach cases

A party accused of breach often argues:

A) No valid contract / defective consent

Contract is void (illegal object/cause)
Voidable (vitiated consent: fraud, intimidation, undue influence, mistake)
Unenforceable (e.g., Statute of Frauds issues—depending on the nature of the agreement and whether there was partial performance)

B) Performance or extinguishment

Payment or performance already made
Novation (new obligation replaces the old)
Compensation/set-off
Condonation/remission
Loss of the thing due (in specific obligations, subject to rules)
Prescription (time-bar) or laches

C) Force majeure / fortuitous event

To succeed, the party typically must show:

Event was independent of human will
Unforeseeable or unavoidable
Rendered performance impossible (not merely more expensive)
Party was not in delay or otherwise at fault (subject to exceptions)

D) The other party breached first

Failure to deliver specs, approvals, access, permits, cooperation
Non-payment that justifies suspension
Prior material breach

7) Prescription (time limits) to sue

Time bars matter. Under the Civil Code:

Actions upon a written contract generally prescribe in 10 years.
Actions upon an oral contract generally prescribe in 6 years. Other related actions have different periods depending on the source of obligation and nature of claim.

Practical note: Prescription analysis can be tricky (when the cause of action accrued, whether demand was required, whether there was acknowledgment, partial payments, etc.). If a claim is near the deadline, act quickly.

8) Litigation and dispute resolution routes in the Philippines

A) Direct court action (civil case)

Typical claims include:

Specific performance with damages
Rescission/resolution with damages and restitution
Collection of sum of money (with interest and damages)
Injunction (to stop prohibited acts—e.g., confidentiality breach), when warranted

Courts often encourage settlement and may require mediation steps under procedural rules.

B) Arbitration and ADR

If the contract has an arbitration clause, disputes may need to go to arbitration rather than court, subject to enforceability and scope of the clause. The Philippines has a strong policy favoring arbitration and alternative dispute resolution.

C) Barangay conciliation (Katarungang Pambarangay)

Certain disputes between individuals in the same city/municipality may require prior barangay conciliation before filing in court, with exceptions (e.g., where a party is a juridical entity, urgency, certain subject matters, or where parties live in different jurisdictions—depending on the rules and facts).

D) Small claims (when applicable)

For purely monetary claims within the small claims threshold (which can change over time), the process is simplified and lawyers may have limited roles. This can be a cost-effective route for straightforward collection cases.

9) Evidence: what wins breach of contract cases

Breach cases are document-heavy. The strongest evidence usually includes:

The contract and all annexes, SOWs, specs, purchase orders
Proof of performance (delivery receipts, acceptance forms, time sheets, completion certificates)
Communications (emails, chats, meeting minutes) showing timelines, approvals, refusals, admissions
Demand letters and proof of receipt
Proof of damages (invoices, receipts, bank records, audited statements, computation schedules)
For technical disputes: expert reports or third-party certifications

10) Practical playbook: enforcing your rights after a breach

Step 1: Identify the exact obligation breached

Quote the clause. Specify:

what was required
when it was due
what was delivered (or not)
how it deviated

Step 2: Check notice/cure/termination provisions

Follow the contract’s procedure meticulously:

required notice method (email? registered mail? personal service?)
cure periods
escalation clauses (project managers → executives)
dispute escalation before arbitration/litigation

Step 3: Send a demand letter (usually)

A strong demand letter:

states the facts and breached provisions
demands performance or proposes resolution
claims damages/penalties/interest where appropriate
sets a reasonable deadline
reserves rights and remedies
attaches key supporting documents

Step 4: Preserve evidence and mitigate losses

Philippine courts often expect reasonable mitigation (e.g., sourcing alternative suppliers, preventing further losses) where practical.

Step 5: Choose the remedy strategically

Ask:

Do you still want the deal? (specific performance)
Is the relationship broken or breach substantial? (rescission/resolution)
Can you prove losses? (actual/temperate/liquidated)
Is injunctive relief needed? (to stop continuing violations)

Step 6: File the proper case / invoke ADR

Match the forum to the contract and situation:

arbitration if agreed
court if no arbitration clause or for court-appropriate relief
small claims for straightforward collection (if within threshold and eligible)
barangay conciliation if required

11) Common scenarios and how remedies typically line up

Non-payment for delivered goods/services

Often pursued as:

collection of sum of money + interest + damages
enforcement of security (if any)
rescission if reciprocal obligations and breach is substantial

Late delivery with penalty clause

Often pursued as:

liquidated damages/penalty enforcement
actual damages if losses exceed penalty (depending on contract structure)
rescission if the delay defeats the contract’s purpose (e.g., time-sensitive)

Defective work / non-conforming deliverables

Often pursued as:

specific performance (repair/redo) at debtor’s cost
price reduction/refund (depending on contract and legal theory)
rescission for substantial non-conformity
damages for rework and delays

Breach of confidentiality / non-compete

Often pursued as:

injunction + damages
enforcement of liquidated damages clause
claims supported by proof of disclosure/use and harm

12) Drafting lessons: preventing breach disputes

Well-written contracts reduce litigation risk. Clauses that matter most:

clear deliverables, acceptance criteria, and timelines
payment terms tied to milestones and acceptance
notice and cure provisions
force majeure definition + effects (suspension, termination after X days)
limitation of liability (where lawful), warranties, indemnities
dispute resolution clause (venue/arbitration, governing law)
attorney’s fees clause (reasonable)
liquidated damages/penalty clause calibrated to risk
documentation hierarchy (which prevails: main contract vs. PO vs. SOW)

13) A careful note on “bad faith”

In Philippine contract law, bad faith can significantly affect damages exposure. Documented dishonesty, willful refusal to comply, concealment, or oppressive conduct can support broader damage claims and attorney’s fees, depending on the circumstances. Conversely, good-faith disputes over interpretation, specs, or legitimate impossibility defenses may limit liability.

14) Bottom line

In the Philippines, remedies for breach of contract generally revolve around:

Compelling performance (when still feasible and desired),
Rescinding/resolving reciprocal contracts for substantial breaches (often with restitution), and
Recovering damages (actual/temperate/nominal/liquidated, and in appropriate cases moral/exemplary and attorney’s fees), all shaped by default rules, demand requirements, contract stipulations, good faith, and proof.

This article is for general informational purposes and not legal advice. Contract disputes are highly fact-specific; remedies, procedure, and deadlines can change depending on the contract’s wording and the timeline of events.