SPOUSES ROMEO PAJARES and IDA T. PAJARES vs.

REMARKABLE
LAUNDRY AND DRY CLEANING, represented by ARCHEMEDES G. SOLIS
G.R. No. 212690, 20 February 2017

Breach of contract may give rise to an action for specific performance or

rescission of contract. It may also be the cause of action in a complaint for
damages filed pursuant to Art. 1170 of the Civil Code. In the specific
performance and rescission of contract cases, the subject matter is incapable of
pecuniary estimation, hence jurisdiction belongs to the Regional Trial Court
(RTC). In the case for damages, however, the court that has jurisdiction
depends upon the total amount of the damages claimed.

xxx

To Our mind, petitioners' responsibility under the above penal clause involves
the payment of liquidated damages because under Article 22261 of the Civil
Code the amount the parties stipulated to pay in case of breach are liquidated
damages. "It is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach."

Concomitantly, what respondent primarily seeks in its Complaint is to recover

aforesaid liquidated damages (which it termed as "incidental and consequential
damages") premised on the alleged breach of contract committed by the
petitioners when they unilaterally ceased business operations. Breach of
contract may also be the cause of action in a complaint for damages filed
pursuant to Article 1170 of the Civil Code. It provides:

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. (Emphasis
supplied)

1ARTICLE 2226. Liquidated damages are those agreed upon by the parties to a contract, to be
paid in case of breach thereof.
 ATLANTIC ERECTORS, INC. vs. COURT OF APPEALS and
HERBAL COVE REALTY CORPORATION
G.R. No. 170732, 11 October 2012

The liability for liquidated damages is governed by Articles 2226-2228 of the

Civil Code which provide:

Article 2226. Liquidated damages are those agreed upon by the

parties to a contract, to be paid in case of breach thereof.

Article 2227. Liquidated damages, whether intended as an

indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

Article 2228. When the breach of the contract committed by the

defendant is not the one contemplated by the parties in agreeing
upon the liquidated damages, the law shall determine the measure
of damages, and not the stipulation.

Based on the above provisions of law, the parties to a contract are allowed
to stipulate on liquidated damages to be paid in case of breach. It is
attached to an obligation in order to ensure performance and has a double
function: (1) to provide for liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat of greater responsibility in the
event of breach. The amount agreed upon answers for damages suffered by the
owner due to delays in the completion of the project. As a pre-condition to such
award, however, there must be proof of the fact of delay in the performance of
the obligation.
 FILINVEST LAND, INC. vs. HON. COURT OF APPEALS, PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY,
and PACIFIC EQUIPMENT CORPORATION
G.R. No.138980, 20 September 2005

The Supreme Court in Laureano instructed that a distinction between a penalty

clause imposed essentially as penalty in case of breach and a penalty clause
imposed as indemnity for damages should be made in cases where there has
been neither partial nor irregular compliance with the terms of the contract. In
cases where there has been partial or irregular compliance, as in this case,
there will be no substantial difference between a penalty and liquidated
damages insofar as legal results are concerned. The distinction is thus more
apparent than real especially in the light of certain provisions of the Civil Code
of the Philippines which provides in Articles 2226 and Article 2227 thereof:

Art. 2226. Liquidated damages are those agreed upon by the

parties to a contract to be paid in case of breach thereof.

Art. 2227. Liquidated damages, whether intended as an indemnity

or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.

Thus, we lamented in one case that "(t)here is no justification for the Civil Code
to make an apparent distinction between a penalty and liquidated damages
because the settled rule is that there is no difference between penalty and
liquidated damages insofar as legal results are concerned and that either may
be recovered without the necessity of proving actual damages and both may be
reduced when proper."
 GOLDEN VALLEY EXPLORATION, INC. vs. PINKIAN MINING COMPANY
and COPPER VALLEY, INC.
G.R. No. 190080, 11 June 2014

In reciprocal obligations, either party may rescind the contract upon the
other’s substantial breach of the obligation/s he had assumed thereunder.
The basis therefor is Article 1191 of the Civil Code which states as follows:

Art. 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.

More accurately referred to as resolution, the right of rescission under Article

1191 is predicated on a breach of faith that violates the reciprocity between
parties to the contract. This retaliatory remedy is given to the contracting
party who suffers the injurious breach on the premise that it is "unjust
that a party be held bound to fulfill his promises when the other violates
his."

As a general rule, the power to rescind an obligation must be invoked judicially

and cannot be exercised solely on a party’s own judgment that the other has
committed a breach of the obligation. This is so because rescission of a
contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of the
parties in making the agreement. As a well-established exception, however, an
injured party need not resort to court action in order to rescind a contract
when the contract itself provides that it may be revoked or cancelled upon
violation of its terms and conditions. As elucidated in Froilan v. Pan Oriental
Shipping Co.,29 "there is x x x nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention." Similarly, in Dela Rama
Steamship Co., Inc. v. Tan, it was held that judicial permission to rescind an
obligation is not necessary if a contract contains a special provision granting
the power of cancellation to a party.