Obligations and Contract

A body of rules that deals with the nature and sources of obligations as well as the rights and duties arising from agreements in contracts is also well known as The Law on Obligations and Contracts. To fully understand the context, below are some layman's definitions of the terms that will be used in the context.

 Law is a rule promulgated by the authority that states the conduct, just and obligatory, for common observance and benefit. On the other hand, a contract is a written or spoken agreement that binds two persons by either asking or rendering of services and is intended to be enforceable by law. And obligation is a legal duty, an act or course of action to which a person is morally or legally bound; a duty or commitment.

The existence of obligations will be impossible without its four elements, the obligee or creditor, the debtor, an object or the prestation, and the juridical or legal tie.

a) an active subject, also known as the obligee or creditor, who has the power to demand the prestation;

b) a passive subject, also known as the debtor, who is bound to perform the prestation;

c) An object or the prestation, which is an object or undertaking to give, to do or not todo;

d) The juridical or legal tie, the vinculum which binds the contracting parties.

The nature and effects of obligation go like this: If the obligations to give is a determinate thing (uses usually on sales)in which, it is particularly designed or physically segregated from all others of the same class, the creditor must have the rights to compel specific performance, recover damages in case of a breach, acquires a personal right to the fruits of the thing from the time the obligation to deliver arises, acquires real right over the thing once the thing has been delivered to him and rights over the accessories and accessions. But if the obligations are a generic thing (commonly uses in loans) on which one whose determination is confined to that of its nature, to the genus to which it pertains such as a horse, a chair. The creditor must ask for performance of the obligation and ask that the obligation be complied with at the expense of the debtor. As a passive subject, you are obligated but is not forced to give a determinate thing - you must comply with some obligations, as stated in the Law of Obligations and Contract to avoid conflicts and misunderstanding that might lead to legal charges if necessary. Obligations to do includes:

a. If the debtor fails to do what he is obliged to do, it will be done at his expense.

b. If the work is done in contravention of the tenor of the obligation, it will be re-done at the debtor‘s expense.

c. If the work is poorly done, it will be re-done at the debtor‘s expense.

The sources of liability (for damages) of a party in an obligation are as follows:

(1) Fraud. In fraud, there is an intent to evade the normal fulfillment of the obligation and to cause damage. This kind of fraud is a ground for annulment of the contract plus damages;

(2) Negligence. The negligence referred here is the lack of diligence or carelessness. Negligence consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, or the time and of the place.

(3) Delay (Mora). The debtor can be held liable for the delay or default in the fulfillment of his obligation only after the creditor has made a demand, judicial or extrajudicial, on the debtor.

(4) Contravention of the tenor of the obligation. Performance in contravention of the tenor or terms of the obligations means where performance is contrary to what is agreed upon or stipulated thus making the debtor liable for damages.

A simple contract is an agreement that can be an oral or written type is made by two parties. There must be an offer, consideration, and acceptance to make it valid.

Classification of Contracts may differ according to:

 Formation and can be classified as an express contract if the terms of a contract are expressly agreed upon between the parties; implied contracts which the proposal is made otherwise than words; and quasi-contract in which it arises not by agreement but by the operations of law.

 Performance and can be classified as a unilateral contract or the one-sided contract; and a bilateral contract where a promise on one side is exchanged for a promise on the other.

 Execution and can be classified by executed Contract when both the parties to contract have performed their share of the obligation; and Executory Contract which is either wholly unperformed or something remains in there to be done by both the parties to contract.

Other Contracts Besides the above-said classification is the Contingent Contract which is collateral to do or not to do something, if some event collateral to such contract, does or does not happen.

A legal contract is an agreement between two parties that creates mutual, legally enforceable obligations. Contracts are typically in writing and signed to prove all of the six essential elements stated below:

 The “offer” is the promise one party makes to pay the other for their services. It often includes other terms and conditions, such as the graphic designer giving up the copyright to the logo.

 Acceptance is when the other party agrees to perform the task for the compensation specified in the contract.

 “Mutual assent” is the combination of a valid offer and acceptance between the parties. A signed contract proves mutual assent.

 Exchanging items of value “Consideration” is what is paid in exchange for goods or services.

 In contract law, “capacity” is the presumed ability of a person to understand the terms, obligations, and consequences of signing a contract. To be legal, the contract must adhere to the law in the jurisdiction where it’s signed.

A contract doesn’t have to be written to be binding if all six elements — offer, acceptance, mutual assent, consideration, capacity, and legality — can be demonstrated but, in many circumstances, a written contract is required to enforce terms in court.

Form of Contracts can be in any form because they are consensual, except, real. Contracts are perfected not by mere consent but by delivery and some contracts can be void if it is not in written form as required by the memorandum to be enforced.

Defective contracts are those which may be relatively ineffective concerning certain parties. Two kinds of defective contracts are Rescissible Contracts and Voidable Contracts.

Typical grounds for a contract being voidable include coercion, undue influence, misrepresentation, or fraud. Other examples would be real estate contracts, lawyer contracts, etc. When a contract is entered into without the free consent of the party, it is considered a voidable contract.

Rule when a determinate thing is lost through a fortuitous event: The obligation is extinguished and the debtor is not liable, except:

a) When to object is generic

b) When the debtors incurs in delay

c) When the law or contract expressly provides that the obligation will not be extinguished.

Two classifications of Obligations were stated under the Civil Code of the Philippines mainly, the primary and secondary classifications. The primary classification of obligations includes pure and conditional obligations (Articles 1179-1192) which are not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. Obligations with a period (Articles 1193-1198) is one whose consequences are subject in one way or another to the expiration of the said period or term. Alternative (1199-1205) and facultative obligations (Article 1206), joint are those where, although there concur two or more creditors and debtors, in one and the same obligation, there is no right to demand nor a duty on the part of each of the latter to render entire compliance of the entire obligation, and solidary obligations are those in which concur several debtors or creditors or both, and where each creditor has the right to demand, and each debtor is bound to perform, in its entirety, the prestation constituting the object of the obligation(Articles 1207-1222). Divisible and indivisible obligations (Articles 1223-1225) and Obligations with a penal clause (Articles 1226-1230) which contains an accessory obligation imposing upon the obligor added burdens or which operates as a previously stipulated indemnity, for the purpose of securing the performance of the principal obligation. On the other hand, the secondary classification of obligations includes unilateral and bilateral obligations (Articles 1169-1191); real and personal obligations (Articles 1163-1168); civil and natural obligations (Articles 1423); and legal, conventional, and penal obligations (Articles 1157, 1159, 1161).

References:

Carpio-Aldeguer (2014). Law on Obligations and Contracts in the Philippines. Far Eastern University Institute of Accounts, Business & Finance