Short answer. Article 1192 of the Civil Code addresses this directly: when both parties have breached, the liability of the first to violate the contract is equitably tempered by the court. If it cannot be determined who breached first, the obligation is treated as extinguished and each party bears their own losses.
What the law says
In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
Civil Code, Article 1192 — Both Parties in Breach. Read the full provision →
Two scenarios: who breached first matters
Article 1192 handles dual-breach situations with two rules. If it is established which party breached first, that first infractor remains liable — but "the liability of the first infractor shall be equitably tempered by the courts." The second party's breach does not eliminate the first's liability; it reduces it. If, on the other hand, "it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages." The inability to establish sequence of breach produces a clean slate — neither party recovers from the other.
What 'equitably tempered' means
Tempering liability equitably means a court reduces what the first infractor owes in proportion to the second party's own breach and the overall circumstances. The first infractor does not escape liability, but the second party's own wrongdoing is factored into the remedy. A complete destruction of the supplier's delivery and your non-payment are both breaches, but if the supplier failed first and caused you to stop paying, the court will calibrate the damages rather than giving either party a windfall. The tempering is a judicial determination — not a formula — based on the facts of each case.
Why the sequence of breach matters so much
Under Article 1192, proving who breached first is often decisive. If you breached first, you are the first infractor and your liability is merely tempered, not eliminated. If the supplier breached first, they are the first infractor and their liability is tempered by your subsequent breach. If neither party can prove who went wrong first, the extinguishment rule kicks in and you each absorb your own losses. This makes evidence of performance and default chronology — delivery schedules, payment records, communications, inspection reports — critical to any claim under this article.
Practical implications for documenting breaches
If you are already in a mutual-breach dispute, the most important thing to establish is the timeline: what each party was required to do and when, what each party actually did and when, and what evidence documents those facts. Contemporaneous written records — notices of default, formal demands, delivery receipts, inspection records, bank transfers — carry more weight than after-the-fact accounts. Before deciding whether to file a claim or agree to a settlement, having a clear picture of who failed first will help you assess which outcome under Article 1192 is most likely.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Victoria Ong vs. Ernesto Bogñalbal, et al, G.R. No. 149140, September 12, 2006 — read the decision on LawPhil →
- Lara’s Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc, G.R. No. 225433, August 28, 2019 — read the decision on LawPhil →
- Sps. Alexander and Julie Lam vs. Kodak Philippines, Ltd, G.R. No. 167615, January 11, 2016 — read the decision on LawPhil →
- George C. Fong vs. Jose V. Duenas, G.R. No. 185592, June 15, 2015 — read the decision on LawPhil →