Elements of Breach of Contract Under Philippine Law
An In-Depth Legal Article

I. Introduction

Under Philippine law, contracts are the bedrock of many private and commercial relationships. Whether it is a simple sales transaction or a complex commercial agreement, the parties’ rights and obligations are generally governed by the provisions of the Civil Code of the Philippines (primarily Articles 1156–1422). When one party fails to fulfill or violates a contractual obligation, a “breach of contract” arises.

Understanding the legal basis and essential elements of breach of contract is vital for anyone engaged in contractual dealings in the Philippines. This article provides a comprehensive exploration of breach of contract under Philippine law: its statutory foundations, elements, classifications, and legal consequences.

II. Legal Basis: The Civil Code of the Philippines

Article 1159 (Force of Law Between the Parties)

“Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.”
This provision establishes the binding effect of a valid contract. Once formed, a contract is legally enforceable, and non-compliance with the terms can lead to liability for breach.
Article 1170 (Liability for Damages)

“Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.”
This article underpins the concept of culpa contractual (contractual fault), imposing liability for any deviation from or violation of the contractual obligation.
Articles 1191 and 1233–1261 (Effects and Remedies)
- Article 1191 deals with the right to rescission (or resolution) and damages in reciprocal obligations.
- Articles 1233–1261 describe modes of extinguishing obligations, including payment, loss of the thing due, condonation or remission, confusion or merger, compensation, and novation—all of which can affect the determination of breach.

Collectively, these provisions highlight the critical nature of good faith performance and the consequences that arise when a contracting party fails to perform their obligations.

III. Defining Breach of Contract

In Philippine jurisprudence, a breach of contract (often called “default” or “non-performance”) occurs when a party fails—without legal justification—to comply with the terms agreed upon in a valid contract. This failure may manifest as:

Failure to Perform – The obligor does not carry out what is explicitly promised.
Defective Performance – The obligor performs but does so incompletely or poorly, defeating the purpose of the contract.
Delayed Performance – The obligor performs the obligation beyond the agreed time without just cause.
Violation of Negative Covenants – The obligor does an act expressly prohibited in the contract.

IV. Essential Elements of Breach of Contract

To successfully claim breach of contract under Philippine law, the claimant must generally establish four essential elements:

Existence of a Valid and Enforceable Contract
There must be a binding agreement that meets all the requisites under Article 1318 of the Civil Code:
- Consent of the contracting parties;
- Object certain which is the subject matter of the contract; and
- Cause of the obligation which is established.
A contract that violates mandatory or prohibitive laws (e.g., those contrary to public policy, morals, or good customs) may be deemed void, rendering any breach claim moot.
Plaintiff’s Compliance with Contractual Obligations
In reciprocal obligations, the complaining party must typically show that they, too, have complied with or are ready and willing to comply with their own contractual duties, or that they were prevented from doing so by the other party’s breach.
Defendant’s Failure to Perform or Violation of the Contract
The defendant must have committed an act (or omission) amounting to a breach—whether by failing to deliver or perform on time, delivering substandard work, failing to pay, or otherwise contravening the tenor of the contract.
Resulting Damage or Injury
Breach of contract claims ordinarily require proof of resulting damage or injury to the aggrieved party. Under Philippine law, different kinds of damages (actual, moral, nominal, temperate, or exemplary) may be awarded depending on the nature and circumstances of the breach.

V. Classifications of Breach

Philippine law and jurisprudence recognize various ways in which contractual breaches can be categorized:

Ordinary (Simple) Breach
Occurs when a party merely fails to comply with the contract on time or in the manner agreed upon, without any special circumstances indicating bad faith or gross negligence.
Fundamental or Substantial Breach
Refers to a breach so serious that it defeats or significantly impairs the very essence of the contract. In such cases, the non-breaching party may seek rescission of the contract under Article 1191 of the Civil Code.
Anticipatory Breach
Although less formal under Philippine law than in some common law jurisdictions, an anticipatory breach can be inferred when one party unequivocally communicates or demonstrates intent not to perform the contractual obligation even before performance is due.
Mora (Delay)
Philippine law also discusses specific forms of delay (mora), which constitute a breach by delay:
- Mora solvendi: Delay by the obligor;
- Mora accipiendi: Delay by the obligee (i.e., refusal to accept performance);
- Compensatio morae: When both parties are in delay in reciprocal obligations.

VI. Remedies for Breach of Contract

When a breach is established, the injured party may seek any (or a combination) of the following remedies, depending on the circumstances:

Specific Performance
The aggrieved party may demand that the defaulting party strictly comply with what is due under the contract, plus any compensatory damages. This is common in obligations to deliver a specific thing or perform a unique service.
Rescission (or Resolution) of the Contract
Under Article 1191, the aggrieved party may seek to terminate the contract in reciprocal obligations if the breach is substantial. Upon rescission, each party generally must restore whatever they received from the other, as if the contract never existed.
Damages
The Civil Code provides for different categories of damages, which the aggrieved party may seek:
- Actual or Compensatory Damages (for the pecuniary loss directly caused by the breach);
- Moral Damages (for mental anguish, social humiliation, or similar injury, typically requiring proof of bad faith or fraud);
- Nominal Damages (to vindicate a right even if no actual loss is shown);
- Temperate or Moderate Damages (awarded when the court finds that some pecuniary loss has been incurred but its exact amount cannot be proved with certainty);
- Exemplary or Corrective Damages (to set an example or correct the wrong done, generally requiring a showing of wanton, fraudulent, or reckless conduct).
Attorney’s Fees and Litigation Costs
In certain cases allowed by law or stipulated in the contract, the prevailing party may recover attorney’s fees and costs of litigation if they had to litigate to enforce their rights.

VII. Defenses Against a Breach of Contract Claim

A defendant facing a breach of contract claim can raise various defenses, such as:

Nullity of the Contract
- The contract was void for being contrary to law, morals, good customs, public order, or public policy.
- Lack of any essential element (no consent, no valid object, no cause).
Absence of Breach
- They actually performed the obligation fully and properly.
- Delay in performance was justified (e.g., force majeure, fortuitous event).
Prior Breach by the Other Party
In reciprocal obligations, if the plaintiff was the one who initially breached the contract, the defendant may argue that the plaintiff has no cause of action.
Extinguishment of the Obligation
The obligation might have already been extinguished through payment, loss of the thing due, condonation, confusion or merger, compensation, novation, or other grounds recognized under Articles 1231–1261.

VIII. Notable Jurisprudential Principles

Philippine Supreme Court decisions have consistently reiterated that:

Good Faith is Presumed
Parties are presumed to engage in contracts in good faith. A breaching party who acted in bad faith or with fraud faces more severe liability (including moral and exemplary damages).
Substantial Performance vs. Substantial Breach
In building or construction contracts, for instance, courts may consider whether the performance rendered, though not perfect, substantially fulfills the essential purpose of the contract. A mere deviation or defect may not necessarily constitute a fundamental breach.
Strict or Literal Compliance
If the contract specifically requires a certain form of performance (e.g., timely completion), courts will typically hold the obligor to the precise terms unless impossibility, fortuitous event, or other valid excuses are established.
Proof of Damage
While damage or injury is a general element of a breach of contract action, in certain cases, courts may award nominal damages to vindicate a contractual right even if the exact monetary loss is difficult to ascertain.

IX. Practical Considerations

Clear, Written Contracts
Parties are strongly advised to reduce their agreements to clear written form. A well-drafted contract that comprehensively sets out obligations, timelines, dispute resolution mechanisms, and damages provisions can help prevent or swiftly resolve potential breaches.
Avoiding Delay and Default
Where obligations are time-sensitive, courts will examine if the delay was excusable (e.g., due to fortuitous events like natural disasters, or government restrictions). Prompt communication and formal notices can also help avoid being faulted for delay.
Mediation and Arbitration
Alternative dispute resolution mechanisms (e.g., mediation, arbitration) are favored under Philippine law and can provide cost-effective, expedited solutions to breach of contract disputes.
Documentation and Evidence
In any breach claim, documentation is crucial. Written demand letters, receipts, proof of partial or full payment, reports of defective performance, and communications form the backbone of evidence in court.

X. Conclusion

Breach of contract under Philippine law rests on foundational principles of consent, good faith, and pacta sunt servanda (agreements must be kept). When a party fails to observe its contractual obligations—whether by non-performance, substandard performance, or delay—an actionable breach arises, giving the aggrieved party the right to seek remedies such as specific performance, rescission, and damages.

To succeed in a breach of contract claim, it is essential to show:

The existence of a valid and enforceable contract;
Compliance or readiness to comply with one’s own obligations;
The defendant’s breach of the contract; and
Resulting damages.

By understanding these elements and the legal framework provided by the Civil Code and jurisprudence, parties in the Philippines can better navigate contractual disputes and protect their rights. Nonetheless, each case can present unique nuances, making it prudent to consult legal counsel for professional advice tailored to the specific facts and circumstances.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. For specific concerns or disputes related to contracts and breaches under Philippine law, it is recommended to seek independent counsel from a qualified attorney.