It is basic that a contract is the 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. Unless the stipulations in a contract are contrary to
law, morals, good customs, public order or public policy, the
same are binding as between the parties. 1

Bachrach Motor Co., Inc. v. lcaranga2 established that:

For non-payment of a note secured by mortgage, the creditor

has a single cause of action against the debtor. This single
cause of action consists in the recovery of the credit with
execution of the security. In other words, the creditor in his
action may make two demands, the payment of the debt and
the foreclosure · of his mortgage. But both demands arise from
the same cause, the nonpayment of the debt, and, for that
reason, they constitute a single cause of action. Though the
debt and the mortgage constitute separate agreements, the
latter is subsidiary to the former, and both refer to one and the
same obligation. Consequently, there exists only one cause of
action for a single breach of that obligation. Plaintiff. then, by
applying the rule above stated, cannot split up his single cause
of action by filing a complaint (or payment of the debt, and
thereafter another complaint (or foreclosure of the mortgage. If
he does so, the filing of the first complaint will bar the
subsequent complaint. By allowing the creditor to file two
separate complaints simultaneously or successively, one to
recover his credit and another to foreclose his mortgage, we
will, in effect, be authorizing him plural redress for a single
breach of contract at so much cost to the courts and with so
much vexation and oppression to the debtor.

The Court, in Sunlife v. Kit3, held:

There are two kinds of interest – monetary and

compensatory.

"Monetary interest refers to the compensation set by the

parties for the use or forbearance of money.”4 No such
1
Morla v. Belmonte, G.R. No. 171146, December 7, 2011 citing Roxas v. De Zuzuarregui, Jr., 516 Phil. 605
(2006).
2
68 Phil. 287, 293-294 (1939) cited in Marilag v. Martinez, G.R. No. 201892, JULY 22, 2015.
3
G.R. No. 183272; October 15, 2014.
4
Id. Citing Asia Trust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012, 677 SCRA 519, 536.
 interest shall be due unless it has been expressly stipulated
in writing.5 "On the other hand, compensatory interest refers
to the penalty or indemnity for damages imposed by law or
by the courts."6 The interest mentioned in Articles 2209 and
22127of the Civil Code applies to compensatory interest. 8

In Ong v. Court of Appeals9, we held that "(a)ctual damages are

such compensation or damages for an injury that will put the
injured party in the position in which he had been before he was
injured. They pertain to such injuries or losses that are actually
sustained and susceptible of measurement." To be
recoverable, actual damages must not only be capable of proof,
but must actually be proved with reasonable degree of
certainty.

Kierulf v. Court of Appeals10 summarized the requirements for

exemplary damages to be awarded:

Exemplary damages are designed to permit the courts to

mould behavior that has socially deleterious consequences,
and its imposition is required by public policy to suppress
the wanton acts of an offender. However, it cannot be
recovered as a matter of right. It is based entirely on the
discretion of the court. Jurisprudence sets certain
requirements before exemplary damages may be awarded,
to wit:

(1) (T)hey may be imposed by way of example or

correction only in addition, among others, to compensatory
damages, and cannot be recovered as a matter of right,
their determination depending upon the amount of
compensatory damages that may be awarded to the
claimant;

(2) the claimant must first establish his right to moral,

temperate, liquidated or compensatory damages; and
5
Id. Citing Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).
6
Id. Citing Asia Trust Development Bank v. Tuble.
7
Id. Citing Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded although
the obligation may be silent upon this point.
8
Id. Citing Siga-an v. Villanueva, supra note 26 at 772.
9
Republic v. Looyuko, G.R. No. 170966, June 22, 2016 citing Duenas v. Guce-Africa, 618 Phil. 10, 18-19
(2009) which cited Sps. Ong v. CA, 361 Phil. 338, 352-353 (1999).
10
Torreon v. Aparra, Jr., G.R. No. 188493, December 13, 2017 citing 336 Phil. 414 (1997) [Per J. Panganiban,
Third Division].
 (3) the wrongful act must be accompanied by bad faith,
and the award would be allowed only if the guilty party acted
in a wanton, fraudulent, reckless, oppressive or malevolent
manner.11

Consequently, the guidelines laid down in Eastern Shipping 12

have been amended as follows:

I. When an obligation, regardless of its source, i.e., law,

contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the

concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:

1. When the obligation is breached, and it consists in

the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to
be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions
of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or

forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from
11
Id.
12
Id. Citing G.R. No. 97412 July 12, 1994.
 the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.13

Attorney’s fees cannot be awarded even if a claimant is

compelled to litigate or to incur expenses to protect his rights
due to the defendant’s act or omission,14

Rescission on account of breach of reciprocal obligations is

provided for in Article 1191 of the Civil Code:

Article 1191. The power to rescind obligations is implied

in reciprocal ones, in case one of the obligors should not
13
Id, citing 716 Phil. 267 (2013) [Per J. Peralta, En Banc].
14
Talampas, Jr. v. Moldex, G.R. No. 170134, June 17, 2015 citing Article 2208 of the Civil Code provides:

ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, labourers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable. (emphasis
supplied)
 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.
(Emphasis supplied)15

In Spouses Velarde:

Considering that the rescission of the contract is based

on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation
prior to the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage
payments . . . should be returned by private respondents,
lest the latter unjustly enrich themselves at the expense of
the former.

Rescission creates the obligation to return the object of

the contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged
to restore. To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is
not merely to terminate it and release the parties from
further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions
as if no contract has been made. (Citations omitted) 16

Laperal v. Solid Homes, Inc.17 has explained how the restitution

spoken of in rescission under Article 1385 of the Civil Code
equally holds true for rescission under Article 1191 of the Civil

15
PEZA v. Pilhino, G.R. No. 185765, September 28, 2016 citing Article 1191 of the Civil Code.
16
Id. Citing 413 Phil. 360 (2001) [Per J. Panganiban, Third Division].
17
Id. Citing 499 Phil. 367 (2005) [Per J. Garcia, Third Division].
Code:

Despite the fact that Article 1124 of the old Civil Code
from whence Article 1191 was taken, used the term
"resolution", the amendment thereto (presently, Article
1191) explicitly and clearly used the term "rescission".
Unless Article 1191 is subsequently amended to revert back
to the term "resolution", this Court has no alternative but to
apply the law, as it is written.

Again, since Article 1385 of the Civil Code expressly and

clearly states that "rescission creates the obligation to return
the things which were the object of the contract, together
with their fruits, and the price with its interest," the Court
finds no justification to sustain petitioners' position that said
Article 1385 does not apply to rescission under Article
1191.18

Article 1191 itself clearly states that the options of rescission

and specific performance come with "with the payment of
damages in either case." The very same breach or delay in
performance that triggers rescission is what makes damages
due.19

When the contracting parties, by their own free acts of will,

agreed on what these damages ought to be, they established
the law between themselves. Their contemplation of the
consequences proper in the event of a breach has been
articulated. When courts are, thereafter, confronted with the
need to award damages in tandem with rescission, courts must
not lose sight of how the parties have explicitly stated, in their
own language, these consequences. To uphold both Article
1191 of the Civil Code and the parties' will, contractually
stipulated liquidated damages must, as a rule, 20 be
maintained.21

Loan is a reciprocal obligation, as it arises from the same cause

where one party is the creditor, and the other the debtor. 22 The

18
Id.
19
Id. Citation omitted.
20
Id. Subject to equitable reduction under Articles 1229 and 2227 of the Civil Code.
21
Id. Citation omitted.
22
Development Bank of the Philippines v. Guarina Agricultural, G.R. No. 160758, January 15, 2014 citing IV
Tolentino, The Civil Code of the Philippines, p. 175 (1999).
obligation of one party in a reciprocal obligation is dependent
upon the obligation of the other, and the performance should
ideally be simultaneous. This means that in a loan, the creditor
should release the full loan amount and the debtor repays it
when it becomes due and demandable.23

Reciprocal obligations are those which arise from the same

cause, and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other (Areola vs. Court of Appeals, 236 SCRA
643). They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous
fulfilment of the other (Jaime Ong vs. Court of Appeals, 310
SCRA 1).24

23
Id. Citing Subic Bay Metropolitan Authority v. Court of Appeals, G.R. No. 192885, July 4, 2012 675 SCRA
758, 766.
24
Id. Citations omitted.