In addition, he is liable under Article 1170 for the cost of the missing No delay in negative personal obligation.

parts for in his obligation to repair the typewriter he was bound, but
failed or neglected to return it in the same condition it was when he In an obligation not to do, non-fulfi llment may take place but
received it. (Chaves vs. Gonzales, 32 SCRA 547 [1970]; see Tanguilig vs. delay is impossible for the debtor fulfi lls by not doing what has
Court of Appeals, 266 SCRA 78 [1997].) been forbidden him. (see Art. 1168.)
Requisites of delay or default by the debtor.
ART. 1168. When the obligation consists in not doing, and the obligor There are three conditions that must be present before mora
does what has been forbidden him, it shall also be undone at his solvendi can exist or its effects arise:
expense. (1099a) (1) failure of the debtor to perform his (positive) obligation on
Remedies of creditor in negative personal obligation. the date agreed upon;
In an obligation not to do, the duty of the obligor is to abstain from an (2) demand (not mere reminder or notice) made by the creditor
act. Here, there is no specifi c performance. The very obligation is fulfi upon the debtor to fulfi ll, perform, or comply with his obligation
llled in not doing what is forbidden. Hence, in this kind of obligation the which demand, may be either judicial (when a complaint is filed
debtor cannot be guilty of delay. (Art. 1169.) in court) or extra-judicial (when made outside of court, orally or
As a rule, the remedy of the obligee is the undoing of the forbidden in writing); and
thing plus damages. (Art. 1170.) However, if it is not possible to undo (3) failure of the debtor to comply with such demand.
what was done, either physically or legally, or because of the rights
acquired by third persons who acted in good faith, or for some other The above presupposes that the obligation is already due or
reason, his remedy is an action for damages caused by the debtor’s demandable and liquidated. (see Art. 1279[4].) There is no delay
violation of his obligation. (see 8 Manresa 58.) if the obligation is not yet due or demandable. A debt is
liquidated when the amount is known or is determinable by
EXAMPLE: inspection of the terms and conditions of relevant documents.
Failure to furnish a debtor a detailed statement of account does
S sold a land to B. It was stipulated that S would not construct a fence on not ipso facto result in an unliquidated obligation. (Selegna
a certain portion of his land adjoining that sold to B. Should S construct a Management and Dev. Corp. vs. United Coconut Planters Bank,
fence in violation of the agreement, B can have the fence removed at the 489 SCRA 125 [2006].)
expense of S. The creditor has the burden of proving that demand has been
ART. 1169. Those obliged to deliver or to do something incur in delay made. It is incumbent upon the debtor, to relieve himself from
from the time the obligee judicially or extra-judicially demands from liability, to prove that the delay was not caused by his fault, i.e.,
them the fulfi llment of their obligation. there was no fraud or negligence on his part. (Arts. 1170, 1173,
1174.)
EXAMPLE: S obliged himself to deliver to B a specifi c
However, the demand by the creditor shall not be necessary in order refrigerator on December 10.
that delay may exist: If S does not deliver the refrigerator on December 10, he is only
(1) When the obligation or the law expressly so declares; or in ordinary delay in the absence of any demand from B although
(2) When from the nature and the circumstances of the obligation it a period has been fi xed for the fulfi llment of the obligation. The
appears that the designation of the time when the thing is to be law presumes that B is giving S an extension of time within
delivered or the service is to be rendered was a controlling motive for which to deliver the refrigerator. Hence, there is no breach of
the establishment of the contract; or the obligation and S is not liable for damages.
(3) When demand would be useless, as when the obligor has rendered it If a demand is made upon S by B on December 15 and S fails to
beyond his power to perform. deliver the refrigerator, S is considered in default only from the
In reciprocal obligations, neither party incurs in delay if the other does date.
not comply or is not ready to comply in a proper manner with what is If an action for specifi c performance is fi led by B on December
incumbent upon him. From the moment one of the parties fulfi lls his 20, the payment of damages for the default must commence on
obligation, delay by the other begins. (1100a) December 15 when he made the extra-judicial demand and not
Meaning of delay. on December 20.
The word delay, as used in the law, is not to be understood according to In the absence of evidence as to such extra-judicial demand, the
its meaning in common parlance. A distinction, therefore, should be effects of default arise from the date of the judicial demand,
made between ordinary delay and legal delay (default or mora) in the that is, from the filing of the complaint. (see Compania General
performance of an obligation. de Tabacos vs. Areza, 7 Phil. 455 [1907]; Lopez vs. Tan Tioco, 8
Phil. 693 [1907]; Queblar vs. Garduño and Martinez, 62 Phil. 879
(1) Ordinary delay is merely the failure to perform an obligation on time. [1936].)
(2) Legal delay or default or mora isthe failure to perform an obligation *A demand is only necessary in order to put an obligor in a due and
on time which failure, constitutes a breach of the obligation. demandable obligation in delay. An extrajudicial demand is not required
Kinds of delay (mora). before a judicial demand. (Auto Corp. Group. vs. Intra Strata Assurance Corp.,
556 SCRA 250 [2008].)
*A grace period is a right, not an obligation, of the debtor. It must not be
They are: likened to an obligation the non-payment of which under Article 1169 would
(1) Mora solvendi or the delay on the part of the debtor to fulfi ll his generally still require judicial or extra-judicial demand before default can be
obligation (to give or to do) by reason of a cause imputable to him; said to arise. When unconditionally conferred, it is effective without further
need of demand either calling for the payment of the obligation or for
honoring the right. (Bricktown Dev’t. Corp. vs. Amor Tierra Dev’t. Corp., 239
(2) Mora accipiendi or the delay on the part of the creditor without SCRA 126 [1994]
justifiable reason to accept the performance of the obligation; and
ILLUSTRATIVE CASES:
(3) Compensatio morae or the delay of the obligors in reciprocal
obligations (like in sale), i.e., the delay of the obligor cancels the delay of 1. Non-payment of taxes by mortgagor on mortgaged realty
the obligee, and vice versa. rendered entire loan due and payable but no demand was made
either of the taxes or of loan itself
Facts: As security for a loan, R executed a real estate mortgage in favor of
E. R bound himself to pay on time the taxes on the mortgaged property;
otherwise, the entire loan would become due and payable. R failed to pay
the taxes as stipulated. No demand was made by E either in respect of
the taxes or the loan itself, the only notice given to being the letter
received by him from E’s lawyer to the effect that he was taking the
necessary steps to foreclose the mortgage extrajudicially because the
taxes had not been paid.
Acting on the foregoing communication, R paid the back taxes
complained of.
Issue: Did R incur in delay in the payment of the taxes and the loan?
Held: No, in view of the absence of previous demand for him to make
such payment notwithstanding that the failure to pay the taxes rendered
the entire loan due and demandable. None of the circumstances in Article
1169 which would dispense E from making the demand was present. In
the light of the principal stipulation of the contract when the mortgage
debt was to be paid, the non-payment of taxes was not a material breach
of the contract.
In any event, there was substantial compliance with the obligation in this
particular aspect so as to arrest effectively the foreclosure sale. (De Los
Reyes vs. De Leon, 11 SCRA 27 [1964].)
—-— —-— —-—
2. Filing of foreclosure suit as equivalent to demand for payment.
Facts: B obliged himself to pay S the balance of the purchase price of a
subdivision lot within two years from completion by S of the roads in said
subdivision. S brought action to foreclose the real estate mortgage
executed by B to secure the payment of the unpaid price. B contends lack
of previous notice of the completion of the roads and the absence of a
demand for payment.
Issue: Is this contention of B tenable?
Held: No. The fi ling of the foreclosure suit by S is suffi cient notice to S of
the completion of the roads and of S’s desire to be paid the purchase
price. (Enriquez vs. Ramos, 73 SCRA 116 [1976].)
—-— —-— —-—
3. Buyer bound herself to pay the balance of the purchase price within a
period of 10 years at a fi xed monthly amortization.
Facts: Petitioners CL (buyer) bound herself to pay HF (seller) P107,750.00
as the total price of the lot purchased: P10,775 shall be paid at the
signing of the contract as downpayment, the balance of P96,975 shall be
paid within a period of 10 years at a monthly amortization of P1,747.30 to
begin from December 7, 1985 with interest at 18% per annumbased on
the balance and corresponding penalty in case of default.
CL failed to pay the installments after April 1, 1989. She claims, however,
that the 10-year period for the payment of the whole purchase price has
not yet elapsed.
Issue: Did CL incur in delay when she failed to pay the monthly
amortizations?
Held: Yes. CL cannot ignore the provision on the payment of monthly
installments by claiming that the 10-year period within which to pay has
not elapsed.
HF performed his part of the obligation by allowing CL to continue in
possession and use of the property. Clearly, when CL did not pay the
monthly amortizations in accordance with the terms of the contract, she
was in delay and liable for damages. However, the default committed by
CL in respect of the obligation could be compensated by the interests and
surcharges imposed upon her under the contract in question. (Leaño vs.
Court of Appeals, 369 SCRA 36 [2001].)
(b) He is liable for interest in case of obligations to pay money
(Art. 2209.) or damages in other obligations. (Art. 1170.) In the
absence of extrajudicial demand, the interest shall commence
from the filing of the complaint; and
(c) He is liable even for a fortuitous event when the obligation is
to deliver a determinate thing. (Arts. 1165, 1170.) However, if
the debtor can prove that the loss would have resulted just the
same even if he had not been in default, the court may equitably
mitigate the damages. (Art. 2215[4].)
In an obligation to deliver a generic thing, the debtor is not
relieved from liability for loss due to a fortuitous event. He can
still be compelled to deliver a thing of the same kind (see Art.
1263.) or held liable for damages. (Art. 1170; see Lee vs. De
Guzman, Jr., 187 SCRA 276 [1990].)
(2) Mora accipiendi. — The effects are as follows:
(a) The creditor is guilty of breach of obligation;
(b) He is liable for damages suffered, if any, by the debtor;
(c) He bears the risk of loss of the thing due (see Art. 1162.);
(d) Where the obligation is to pay money, the debtor is not
liable for interest from the time of the creditor’s delay; and
(e) The debtor may release himself from the obligation by the
consignation of the thing or sum due. (see Art. 1256.)
(3) Compensatio morae. — The delay of the obligor cancels out
the effects of the delay of the obligee and vice versa. The net
result is that there is no actionable default on the part of both
parties, such that as if neither one is guilty of delay.
If the delay of one party is followed by that of the other, the
liability of the fi rst infractor shall be equitably tempered or
balanced by the courts. If it cannot be determined which of the
parties is guilty of delay, the contract shall be deemed
extinguished and each shall bear his own damages. (Art. 1192.)
When demand not necessary to put debtor in delay.
The general rule is that delay begins only from the moment the
creditor demands, judicially or extrajudicially, the fulfi llment of
the obligation. The demand for performance marks the time
when the obligor incurs mora or delay and is deemed to have
violated his obligation. Without such demand, the effect of
default will not arise unless any of the exceptions mentioned
below is clearly proved.
(1) When the obligation so provides. —
EXAMPLE:
D promised to pay C the sum of P20,000.00 on or before
November 30 without the need of any demand. Therefore, if D
fails to pay on November 30, he is automatically in default. In
this case, the parties stipulate to dispense with the demand
The mere fi xing of the period is not enough. The arrival of the
period merely makes the obligation demandable. Before its
arrival, the creditor cannot demand performance. The obligation
must expressly so declare that demand is not necessary or must
use words to that effect, as for instance, “the debtor will be in
default” or “I will be liable for damages.”
EXAMPLE:
The contract of loan between D and C provides that failure of D
to pay any installment therein stipulated would mature the
entire obligation. It does not state that in such an event, D shall
thereafter be in default.

Effects of delay.

(1) Mora solvendi. — The following are the effects:

(a) The debtor is guilty of breach of the obligation;

(b) He is liable for interest in case of obligations to pay money

(Art. 2209.) or damages in other obligations. (Art. 1170.) In the

absence of extrajudicial demand, the interest shall commence from

the fi ling of the complaint; and

Demand is still necessary to hold D in default upon failure to pay any S obliged himself to deliver a specifi c horse to B on December 5.
such installments. He is not liable for interest for default for the whole Through S’s negligence or deliberate act, or by reason of a
debt except from the time that judicial or extrajudicial demand for fortuitous event for which S has expressly bound himself
payment is made upon him. (see Quebar vs. Garduno and Martinez, responsible (see Art. 1174.), the horse died on December 2.
62 Phil. 879 [1936]; De los Reyes vs. De Leon, 11 SCRA 27 [1964].) Under this situation, any demand for the delivery of the horse on
(2) When the law so provides. — December 5 would be useless as S has made it impossible for him
to perform his obligation.
EXAMPLES: Demand is also unnecessary where it is apparent that it would be
(a) Under the law, taxes should be paid on or before a specifi c date; unavailing, as where there has been a prior absolute refusal by S
otherwise, penalties and surcharges are imposed without the need of (see 13 C.J. 661.) or S has manifested an intention not to comply
demand for payment by the government. with his obligation.
(b) The partner is liable for the fruits of the thing he may have (5) When there is performance by a party in reciprocal obligations.
promised to contribute to the partnership from the time they should — In case of reciprocal obligations (see Art. 1191.), the
have been delivered without the need of any demand. (Art. 1786; see performance of one is conditioned upon the simultaneous fulfi
also Art. 1788.) llment on the part of the other.
(3) When time is of the essence. — (a) So neither party incurs in delay if the other does not comply or
EXAMPLES: is not ready to comply in a proper manner with what is incumbent
The delivery of balloons on a particular date when a children’s party upon him. (Art. 11699, last par.) This is compensatio morae. Thus,
will be held; the making of a wedding dress where the wedding is where the contract of sale imposes on the seller the obligation to
scheduled at a certain time; payment of money at a particular time so deliver to the buyer a reasonably habitable dwelling in return for
that the creditor could pay off certain debts due on the same date; his undertaking to pay the stipulated price in monthly
the delivery of a car to be used in a trip at a particular time; etc. amortizations, the seller cannot invoke the buyer’s suspension of
In all the foregoing cases, the debtor is fully aware that the payment of amortizations as cause to cancel the contract where
performance of the obligation after the designated time would no the seller did not fulfill its obligation and is not willing to put the
longer benefi t the creditor. When the time of delivery is not fixed or house in habitable state. (Agcaoili vs. GSIS, 165 SCRA 1 [1988].)
is stated in general and indefi nite terms, time is not of the essence of (b) From the moment a party in reciprocal obligations fulfi lls or is
the contract. In such cases, the delivery must be made within a ready to fulfill his obligation, delay by the other begins. Where the
reasonable time, in the absence of anything to show that an parties fi x a period for the performance of their reciprocal
immediate delivery was intended. (Smith, Bell & Co., Ltd. vs. Matti, 44 obligations, neither party can demand performance nor incur in
Phil. 874 [1922].) Even where time is of the essence, a breach of the delay before the expiration of the period. (Abesamis vs. Woodcraft
contract in that respect by one of the parties may be waived by the Works, Ltd., 30 SCRA 372 [1969].) The parties may provide
other party’s subsequently treating the contract as still in force. different dates for performance of their respective obligations.
(Lorenzo Shipping Corp. vs. BJ Marthel International, Inc., 443 SCRA (c) Obligations under an option to buy (see Art. 1324.) are
163 [2004].) reciprocal obligations, i.e., the payment of the purchase price by
ILLUSTRATIVE CASE: the would-be buyer is contingent upon the execution of the deed
of sale by the owner of the property; hence, notice to the latter of
Prizes in a contest were not awarded on date specifi ed, but winner the former’s decision to exercise his option to buy and readiness to
did not make any demand. pay the price need not be coupled with actual payment thereof
Facts: B (bank) started a contest of designs and plans for the and since the obligation is not yet due, consignation in court(Art.
construction of a building, announcing that the prizes would be 1256.) of the purchase price is not required. (Heirs of Luis Bacus vs.
awarded not later than November 30, 1921. C took part in the Court of Appeals, 371 SCRA 295 [2001].
contest, performing work and incurring expenses for that purpose. B
did not name judges and failed to award the prizes on the date specifi ILLUSTRATIVE CASES:
ed.
C contended that the said date was the principal inducement in the 1. Payment of purchase price is conditioned upon conveyance by
creation of the obligation, because the current cost of concrete all the co-owners of their entire interest in the property sold.
buildings at that time was fixed. Facts: S sold to B a piece of land owned by her in common with the
Issue: Was B in default in not awarding the prizes on November 30, understanding that S was to procure the conveyance and also the
1921? interests of her co-owners. B refused to make further payments of
Held: No. The fi xation of said price cannot be considered as the the purchase price because of S’s failure to procure that
principal inducement of the contract for the contestants; neither was conveyance of the entire estate to B.
it for the bank, which could not be certain that said price would After some years, S became the owner of the whole estate. In view
continue to be the current price when it desired to construct the of its increased value, S brought action for rescission.
building designed. There is no sufficient reason for considering that Issue: Has S the right to rescind the contract on the ground that B
the date set for the award of the prizes was the principal inducement has failed to pay the purchase price?
to the creation of the obligation. Held: No. The failure of B to pay was due to S’s failure to convey to
The bank cannot be held in default through the mere lapse of time. him the interests in the whole land and, therefore, he should not
There must be a demand, judicial or extrajudicial. (De la Rosa vs. Bank be deemed to have been in default. The contract entailed mutual
of the Phil. Islands, 51 Phil. 926 [1928].) obligations, and if either party can be said to have been in default
It is not necessary for the contract to categorically state that time is of it was S rather than B. The contract contemplated a conveyance of
the essence; intent is suffi cient. (Hanlon vs. Hauserman, 40 Phil. 766 the entire interest in the land and S clearly obligated herself to that
[1919].) extent.
(4) When demand would be useless. —
S was, therefore, not in position to compel B to pay until she could
EXAMPLE: offer to him a deed suffi cient to pass the whole legal estate; and
for the same reason, to rescind the contract on the ground that B
failed to pay the purchase price. (Causing vs. Bencer, 37 Phil. 417
S obliged himself to deliver a specifi c horse to B on December 5. [1918].)

Through S’s negligence or deliberate act, or by reason of a fortuitous —-— —-— —-—

2. Payment of purchase price is conditioned upon grant by seller

to buyer

of authority to sell or mortgage the property seller agreed to

convey.

Facts: S agreed to convey to B a 36% share in two parcels of land

upon payment of P35,000.00 and to authorize B to sell or mortgage

—-— —-— —-—
2. Payment of purchase price is conditioned upon grant by seller to
buyer of authority to sell or mortgage the property seller agreed to
convey.
Facts: S agreed to convey to B a 36% share in two parcels of land upon
payment of P35,000.00 and to authorize B to sell or mortgage the said
36% interest for the purpose of raising the P35,000.00 within 70 days
from the date of the agreement. It was stipulated that should B fail to
pay the P35,000.00 within the 70-day period fi xed, S would
automatically be the owner of the 36% interest in the properties.
B failed to pay the P35,000.00 within the 70-day period. He alleges
that his inability was due to the refusal of S to grant the authority to
sell or mortgage the 36% of the properties.
Issue: Without the authority in question did the obligation of B to pay S
mature?
Held: No. The stipulation has established reciprocal obligations
between the parties. The sequence in which they are to be performed
is quite clear. The giving of the authority to sell or mortgage precedes
the obligation of B to pay P35,000.00. (Martinez vs. Cavives, 25 Phil.
581 [1913].) Without the authority, the 70-day period for payment did
not commence to run. From the very nature of the obligation assumed
by S, demand by B that it be performed was not necessary. (Art. 1169,
par. 2.)
In this case, S was ordered to execute in favor of B the proper
authority to sell or mortgage within 30 days from notice of the
decision and B to pay S P35,000.00 within 30 days from the date such
authority is granted. (Rodriguez vs. Belgica, 1 SCRA 611 [1961].)
When time of the essence even without express stipulation.
It is not necessary, in order to make time of the essence of a contract,
that the contract should expressly so declare. Words of this import
need not be used. It is suffi cient that the intention to this effect should
appear, and there are certain situations wherein it is held, from the
nature of the agreement itself, that time is of the essence of the
contract.
Time may be of the essence, without express stipulation to that effect
by implication from the nature of the contract itself, of the subject
matter, or of the circumstances under which the contract is made. (36
Cyc. 709.)
(1) In agreements which are executed in the form of options, time is
always held to be of the essence of the contract, and it is well
recognized that in such contracts, acceptance of the option and
payment of the purchase price constitute conditions precedent to
specific performance. (Ibid., 711.)
(2) The same is true generally of all unilateral contracts. (Ibid.)
(3) In mercantile contracts for the manufacture and sale of goods, time
is also held to be of the essence of the agreement. (13 C.J. 688.)
(4) Likewise, where the subject matter of a contract is of speculative or
fluctuating value, it is held that the parties must have intended time to
be of the essence. (Ibid.)
(5) Most conspicuous among all the situations where time is presumed
to be of the essence of a contract from the very nature of the subject-
matter is that where the contract relates to mining property. As has
been well said by the Supreme Court of the United States, such
property requires, and of all properties perhaps the most requires, the
persons interested in it to be vigilant and active in asserting theirights.
(Waterman vs. Banks, 144 U.S. 394, 36 L. Ed., 479, 483.) Hence, it is
uniformly held that time is of the essence of the contract in the case of
an option on mining property, or a contract for the sale thereof, even
though there is no express stipulation to that effect. (27 Cyc., 675,
cited in Hanlon vs. Hausserman, 40 Phil. 796 [1919].)
ART. 1170. 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. (1101)
Grounds for liability.
Article 1170 gives the four grounds for liability which may entitle
the injured party to damages (see Art. 2197.) for all kinds of
obligations regardless of their source, mentioned in Article 1157,
whether the obligations are real or personal. (supra.) It
contemplates that the obligation was eventually performed but
the obligor is guilty of breach thereof.
Here, the breach of the obligation is voluntary; in Article 1174, it is
involuntary.
(1) Fraud (deceit or dolo). — As used in Article 1170, it is the
deliberate or intentional evasion of the normal fulfi llment of an
obligation. (see 8 Manresa 72.)
(a) As a ground for damages, it implies some kind of malice or
dishonesty and it cannot cover cases of mistake and errors of
judgment made in good faith. It is synonymous to bad faith in that
it involves a design to mislead or deceive another. (O’leary
Macondray & Co., 45 Phil. 812 [1924]; Solid Bank Corp. vs.
Mindanao Ferroalloy Corp., 464 SCRA 409 [2005].) Moral damages
may be recovered in addition to other damages. (see Art. 2220; Far
East Bank & Trust Co. vs. Court of Appeals, 241 SCRA 671 [1995].)
(b) Article 1170 refers to incidental fraud (dolo incidente)
committed in the performance of an obligation already existing
because of contract. It is to be differentiated from causal fraud
(dolo causante) or fraud employed in the execution of a contract
under Article 1338, which vitiates consent and makes the contract
voidable and to incidental fraud under Article 1344 also employed
for the purpose of securing the consent of the other party to enter
into the contract but such fraud was not the principal inducement
to the making of the contract.
*Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or interest or ill-will that partakes
of the nature of fraud. Bad faith and fraud are allegations of a fact that demand
clear and convincing proof. (Cathay Pacific Airways, Ltd. vs. Vasquez, 399 SCRA
207 [2003].) It is good faith, not bad faith, which is presumed.
(c) Under Article 1170, the fraud is employed for the purpose of
evading the normal fulfillment of an obligation and its existence
merely results in breach thereof giving rise to a right by the
innocent party to recover damages. The Civil Code refers to civil
fraud. Criminal fraud gives rise to criminal liability.
EXAMPLE: S obliged himself to deliver to B 20 bottles of wine, of a
particular brand. S delivered 20 bottles knowing that they contain
cheaper wine. S is guilty of fraud and is liable for damages to B.
If B bought the 20 bottles of wine on the false representation of S
that the wine is that as represented by the labels, the fraud
committed by S is causal fraud. Without the fraud, B would not
have given his consent to the contract. He has the right to have the
contract annulled or set aside on the ground of the fraud. (Arts.
1390, 1391.)
In the first situation, the remedy of B is not annulment of the
contract of sale which is not affected by the incidental fraud but to
claim damages. If the fraud employed by S to get B’s consent was
not the principal inducement that led B to enter into the contract,
the fraud is also incidental under Article 1344 and it will likewise
give rise only to an action for damages. (see Art. 1344, par. 2.)
ILLUSTRATIVE CASE:
Liability of a party authorized by another to exercise discretion, for
honest mistakes or errors of judgment.
Facts: C, contractor, brought action to recover the actual costs of
the construction of the building of B, plus 12-1/2% for and on
account of his services and superintendence of the building, as per
contract. B alleged that through C’s negligence in the construction
of the building and the purchase of materials, B suffered damages.
B’s counterclaims are founded upon C’s mistakes and errors of
judgment in the employment of labor and the purchase of
materials.
Issue: Assuming that there were such mistakes or errors of
judgment,
would C be liable for them under the contract?
 B’s counterclaims are founded upon C’s mistakes and errors of
judgment in the employment of labor and the purchase of materials.
Issue: Assuming that there were such mistakes or errors of judgment,
would C be liable for them under the contract?
Held: No. The fact that the price of lumber or of labor went up or
down, or was cheaper at a certain time, would not make C liable for a
breach of contract, so long as he was exercising his best judgment and
acting in good faith. Under the contract, the materials were to be
purchased by C “in such quantities and at such times as may appear to
be to your [B’s] interest.” This vested in C a discretionary power as to
the time and manner for the purchase of materials.
The same thing is true as to the employment of labor. While it is true
that the contract recites that time is an important provision, it does
not say, however, when the building is to be completed or that time is
of the essence of the contract. In other words, under the terms of the
contract, the employment of labor, the purchase of materials, and the
construction and completion of the building were all matters which
were largely left to the discretion of C, for which he should not be held
liable for honest mistakes or errors of judgment. (O’leary vs.
Macondray & Co., 45 Phil. 812 [1924].)
(2) Negligence (fault or culpa). — It is any voluntary act or omission,
there being no malice, which prevents the normal fulfi llment of an
obligation. (see Arts. 1173, 1174.)
(3) Delay (mora). — This has already been discussed under Article
1169 which determines the commencement of delay. It has been ruled
that the delay in the performance of the obligation under Article 1170
must be either malicious or negligent. Thus, where the omission of the
buyer to sign a check, one of 24 post dated checks which were
delivered to the seller who did not bother to call the buyer to ask him
to sign the check, was mere “inadvertence’’ on the part of the buyer,
the latter was held not liable for damages resulting from the delay in
the payment of the value of the unsigned check. (Rizal Commercial
Banking Corp. vs. Court of Appeals, 305 SCRA 449 [1999].)
(4) Contravention of the terms of the obligation. — This is the violation
of the terms and conditions stipulated in the obligation. The
contravention must not be due to a fortuitous event or force majeure.
(Art. 1174.) The unilateral act of terminating a contract without legal
justification by a party makes him liable for damages suffered by the
other pursuant to Article 1170. (Pacmac, Inc. vs. Intermediate
Appellate Court, 150 SCRA 555 [1987].)
*The act of a bank of allowing complete strangers to take possession
of the owner’s duplicate certificate of title entrusted to it even if the
purpose is merely for photo copying constitutes manifest negligence
which would hold it liable for damages to those contractually and
legally entitled to its possession, under Article 1170 and other relevant
provisions of the Civil Code. (Heirs of E. Manlapat vs. Court of Appeals,
459 SCRA 412 [2005].)
Recovery of damages for breach of contract or obligation.
Breach of contract is the failure without justifi able excuse to comply
with the terms of a contract. The breach may be willful or done
unintentionally. It has been defi ned as the failure, without legal
excuse, to perform any promise which forms the whole or part of the
contract. (Nakpil vs. Manila Towers Dev. Corp., 502 SCRA 470 [2006].)
(1) Measure of recoverable damages. — The provisions under Title
XVIII on “Damages’’ of the Civil Code govern in determining the
measure of recoverable damages. Fundamental in the law on damages
is that one injured by a breach of a contract, or by a wrongful or
negligent act or omission shall have a fair and just compensation
commensurate to the loss sustained as a consequence of the
defendant’s act. (Llorente, Jr. vs. Sandiganbayan, 287 SCRA 382
[1998].)
(2) Contractual interests of obligee or promisee, remedy serves to
preserve. — A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promisee
that may include:
(a) Expectation interest, which is his interest in having the benefit
of his bargain by being put in as good a position as he would have
been had the contract been performed; or
(b) Reliance interest, which is his interest in being reimbursed for
loss caused by reliance on the contract by being put in as good a
position as he would have been had the contract not been made; or
(c) Restitution interest, which is his interest in having restored to
him any benefi t that he has conferred on the other party. (FGU
Insurance Corp. vs. G.P. Sarmiento Trucking Corp., 386 SCRA 312
[2002].)
*The award of the different kinds of damages cannot be lumped
together (e.g., to pay plaintiff actual, moral and exemplary damages
in the amount of P100,000). The damages as well as attorney’s fees
must each be independently identifi ed and justifi ed. (Herbosa vs.
Court of Appeals, 374 SCRA 578 [2002].)
(3) Excuse from ensuing liability. — The effect of every infraction is
to create a new duty, that is, to make recompense to the one who
has been injured by the failure of another to observe his contractual
obligation. The mere proof of the existence of the contract and the
failure of its compliance justify a corresponding right of relief to the
obligee unless the obligor can show extenuating circumstance, like
proof of his exercise of due diligence (normally that of the diligence
of a good father of a family or, exceptionally by stipulation or by law
such as in the case of common carriers, that of extraordinary
diligence) or of the attendance of fortuitous event, to excuse him
from his ensuing liability. (Ibid.)
(4) Duty of obligee to minimize his damages. — An obligee is duty
bound to minimize the damages for which he intends to hold any
obligor responsible. (see Art. 2203.) He cannot recover damages for
any loss which he might have avoided with ordinary care. If his
negligence was contributory to the loss, the court may equitably
mitigate the damages. (infra.)
The duty to minimize his damages as much as possible is imposed
by law upon the claimant, regardless of the unquestionability of his
entitlement thereto. Such indeed is the demand of equity, for the
juridical concept of damages is nothing more than to repair what
has been lost materially and morally. It may not be taken advantage
of to allow unjust enrichment. (Lina vs. Purisima, 82 SCRA 344
[1978].)
Damages recoverable where obligation to pay money.
(1) Penalty interest for delay or non-performance. — Damages may
be recovered under Article 1170 when the obligation is to do
something other than the payment of money but when the
obligation which the debtor failed to perform consists only in the
payment of money, the rule of damages is that laid down in Article
2209 of the Civil Code. (Quiros vs. Tan-Guinlay, 5 Phil. 675 [1906];
Talisay Silay Milling Co., Inc. vs. Court of Industrial Relations, 4 SCRA
1009 [1962].) Said article is as follows:
“If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum. (1108)”
The damage dues (or penalty interest) do not include and are not
included in the computation of interest as the two are distinct
claims which may be demanded separately. While interest agreed
upon forms part of the consideration of the contract itself, damage
dues are usually made payable only in case of default or non-
performance of the contract. (Sentinel Insurance Co., Inc. vs. Court
of Appeals, 182 SCRA 516 [1990].)
(2) Rate of the penalty interest. — The rate of the penalty interest
payable shall be that agreed upon. In the absence of stipulation of a
particular rate of penalty interest, then the additional interest shall
be at a rate equal to the regular monetary interest; and if no regular
interest had been agreed upon, then the legal interest shall be paid.