Civil Code: Obligations and Contracts

• The laws on obligations and contracts are in the Civil Code of the Philippines.

Obligations

• Per Article 1156, an obligation constitutes a juridical necessity to give, to do, or not to do.
• An obligation is a legal duty, the violation of which can be the basis for legal action.
• An obligation requires compliance to avoid damages to contracting parties or third persons, with non-compliance leading to actions like demands for payment/damages.
• There are 3 types of obligation: to give, to do, or not to do.

Kinds of Obligations

• Obligation to give involves the debtor's duty to deliver a movable or immovable item to the creditor
  • This includes sales, deposits, or donations.
• Obligation to do covers physical or mental works/services
  • Examples include event contracts, painting, and modeling.
• Obligation not to do mandates refraining from certain acts
  • A building owner not creating noise, offensive odors, smoke, or heat.

Elements of an Obligation

• Every obligation needs four elements to exist.
• Active subject: the one demanding performance, also known as the creditor or obligee.
• Passive subject: the one bound to perform, known as the debtor or obligor.
• Object/Prestation: the subject of the obligation with economic value that can have monetary substitution if non-compliant.
• Juridical/Legal Tie: the vinculum binding contracting parties, such as in sales or service contracts.

Sources of Liability

• Sources of liability for damages related to fulfilling an obligation encompass the following:
• Fraud: incidental fraud during the performance of an obligation with intent to evade fulfillment and cause damage
  • Example would be delivering a used phone instead of a new one.
• Negligence: culpa contractual, or negligence incident to performing a contractual obligation, indicating a lack of required diligence based on the nature, circumstances, time and place of the obligation.
• Delay: occurs when those obliged to deliver or perform something fail to do so after the stipulated period, and have been judicially or extra-judicially asked by the obligee.

Sources of an Obligation

• Article 1157 lists the sources of obligation as law, contracts, quasi-contracts, delicts/punishable acts/omissions, and quasi-delicts

Sources of Obligations in Detail

• Law: Obligations arise directly from legal mandates
  • The taxpayer's duty to pay taxes show this.
• Contracts: Obligations arise from undertakings in a contract
  • Paying for excess catering attendees is an example.
• Quasi-contracts: These are lawful, voluntary, unilateral acts based on preventing unjust enrichment
  • Common forms include solutio indebiti (payment by mistake needing return)
  • Negotiorum gestio (managing abandoned business without consent, requiring attending or calling on the owner).
• Delicts: Obligations come from crimes/delicts per the Revised Penal Code, involving restitution, reparation, consequential damages and Civil Code
  • A culprit paying damages for causing death exemplifies this.
• Quasi-delicts: Any act/omission causing damage to another due to fault or negligence, without a pre-existing contract, needing a tortfeasor to pay for injuries.

Diligence Needed

• Article 1163 mandates that someone obliged "to give something" must care for it with the diligence of a good father, unless the law/stipulation specifies otherwise.

Modes of Extinguishing Obligations

• Article 1231 lists these as payment/performance, loss of the thing due, condonation/remission of debt, confusion/merger of creditor/debtor rights, compensation, and novation.
• Other causes include annulment, rescission, fulfillment of resolutory condition, and prescription.
• Guest paying restaurant for a meal is an example of extinguishing obligations Obligations from a contract may be extinguished when the thing due is lost, with no fault of the obligor.
• Loss is understood as when the thing perishes, goes out of commerce, or disappears so that it cannot be recovered.
• Wedding coordinator is absolved from liabilities after a tornado hits the wedding.
• Fortuitous events are extraordinary events not foreseeable/avoidable, which exempt an obligor from liability
  • These are also called force majeure.
• Article 1174 dictates that these events could not be foreseen, or if foreseen, were inevitable.

Causes of Fortuitous Events

• Fortuitous events can stem from two general causes:
  • By nature: earthquakes, storms, floods
  • By man's actions: armed invasion, bandit attacks, robbery, requiring an irresistible force (3 Salvat 83-84) for it to be considered as one.
• Fortuitous events feature accidents where fault/negligence can't be assigned to the debtor.
• If loss occurs through robbery with violence, prove the violence was irresistible.
• If loss is through theft, negligence is assumed if the item was reachable by thieves, making the debtor liable.

Condonation/Remission

• Condonation/remission is when a creditor willingly forgives/remits a debt.
• Proprietor's debt extinguished if the supplier offers amount as gift for patronage.

Merger/Confusion

• Article 1275 says obligation is extinguished when creditor/debtor merge, voiding right of one over the other.
• Ms. Santos issues a promissory note, Reyes transfers it to Ramos, who then transfers to Santos, thus, Santos' obligation is extinguished by becoming both debtor and creditor.

Compensation

• Compensation extinguishes obligations by offsetting mutual debts; two parties are principal creditors/debtors to each other.
• Flora Hotel owes the linen supplier Php80,000 and linen supplier also needs catering so Flora Hotel offsets Php50,000 to the linen supplier.

Novation

• Novation changes/modifies an obligation, extinguishing the old one, by making a previous valid obligation, an agreement to extinguish the old one; and the validity of the new obligation neede.
• Aike hires Arjel for two weddings, paying Php10,000. Weddings are cancelled, and five more dates are scheduled, then the Php10,000 is used as advance payment, removing obligation for Arjel to perform at the initial weddings.
• Death extinguishes personal obligations, such as in partnership/agency contexts.

Application of the Law

• Danny Ramos contracts with CM Wine, but if CM Wine fails to deliver 150 wine bottles by a certain date, they are liable for damages of Php10,000.
• CM Wine fails, faces complaints, and Danny Ramos can pursue damages.

Contracts

• Per Article 1305, a contract requires a meeting of minds where one binds oneself to another to give/render service.
• Essential elements include consent, certain object, and cause of obligation.
• A contract of adhesion involves one party drafting terms, with the other merely affixing a signature.
• Adhesion contracts are valid but can be voided when weaker parties face imposition, lacking bargaining power

Characteristics of a Contract

• Mutuality: Validity/performance can't depend on one party.
• Autonomy: Parties can stipulate terms freely if there is no violation of laws/morals.
• Relativity: Contracts bind only the parties and successors, this includes third person beneficiaries in insurance policies.
• Consensuality: Perfected by consent, unless law needs other forms
  • Real contracts (loan, deposit) and Statute of Frauds are also exceptions
• Obligatory Force: Contracts act as law between parties, enforceable in court.

Stages of a Contract

• Generation: Preliminary stage with bargaining.
• Perfection: The contract is made.
• Consummation: Purpose of contract fulfilled.

Defective Contracts

• Defective Contracts: found based on Articles 1380 to 1422 of the Civil Code
• Rescissible Contract: valid, but defective due to injury/damage needing rescission
• Rescissible contracts include ones where guardians cause lesion over one-fourth of thing's value, agreements affecting absentees with similar lesions, fraud against creditors, litigious items entered without approval, or per special legal declaration.
• Brent inherits P40M restaurant, Terry sells it under value, and Brent can seek rescission.
• Brent is a minor so Terry was put as guardian, Terry sells restaurant at P29M.
• Voidable Contract: valid until annulled, consent flawed (capacity, mistake, violence, etc.)
• Contracts are voidable if one party lacks capacity or consent is flawed, even without damages (Article 1390).
• Carlo owns restaurant, Malon forces contract by shooting Carlo, and Carlo can annul contract due to violence.
• Unenforceable Contract: cannot be enforced unless ratified; lacks authority, violates Statute of Frauds, or there is no capacity.
• Zaria wants to rent Aika's remaining area for 5 years, but there is no contract and no written proof.
  • Contract is unenforceable if they agree to one year.
• Void Contract: legally nonexistent, confers no rights (Article 1409)
  • This can be used when the cause/object is illegal, immoral, or absolutely simulated/fictitious.
  • Contracts with impossible services, unascertainable intentions, or legal prohibitions are also void.
• A contract between a drug dealer and buyers is a void contract because of the contract being illegal.