Law on Obligations and Contracts

• The law on obligations and contracts is a branch of civil law governing agreements and their legal consequences.
• It addresses the nature, sources, types, and effects of obligations, along with the creation, performance, and termination of contracts.

Obligations

• An obligation constitutes a juridical necessity to give, to do, or not to do.
• It represents a legal bond where parties are bound to perform a prestation for another's benefit.

Essential Requisites of an Obligation

• Passive subject (debtor/obligor) is bound to fulfill the obligation.
• Active subject (creditor/obligee) can demand fulfillment of the obligation.
• Object or prestation is the obligation's subject matter (to give, to do, or not to do).
• Juridical or legal tie (vinculum juris) explains the obligation's existence.

Sources of Obligations

• Law: Obligations imposed by legal statutes.
• Contracts: Obligations arising from agreements between parties.
• Quasi-contracts: Obligations arising from lawful, voluntary, unilateral acts preventing unjust enrichment.
• Delicts (crimes): Obligations arising from criminal offenses.
• Quasi-delicts (torts): Obligations arising from damage caused by fault, negligence, or omission, without a pre-existing contract.

Nature and Effect of Obligations

• Debtor's duty includes preserving, delivering, and providing fruits and accessories of the object, and paying damages for breaches.
• Creditor's rights include demanding delivery, fruits, and accessories, using legal remedies for compliance, and recovering damages.

Kinds of Obligations

• Pure and Conditional Obligations
  • Pure obligation is immediately demandable, but may be subject to a resolutory condition/period.
  • Conditional obligation's fulfillment/extinguishment hinges on a future, uncertain event.
    • Suspensive (condition precedent) makes the obligation arise upon condition fulfillment.
    • Resolutory (condition subsequent) extinguishes the obligation upon condition fulfillment.
• Obligations with a Period
  • Demandability/extinguishment depends on a period or term's expiration.
  • A period refers to a future, certain event.
  • Suspensive Period (ex die) means the obligation becomes demandable when a specific day arrives.
  • Resolutory Period (in diem) means the obligation is valid until a specific day, extinguishing upon arrival.
• Alternative and Facultative Obligations
  • Alternative obligations involve several prestations, but performing one suffices.
  • Facultative obligations involve one prestation, but the debtor can substitute it.
• Joint and Solidary Obligations
  • Joint obligations mean each debtor is liable for their share, and each creditor is entitled to their share.
  • Solidary obligations mean each debtor is liable for the entire obligation, and each creditor can demand the entire obligation from any debtor.
• Divisible and Indivisible Obligations
  • Divisible obligations allow partial performance.
  • Indivisible obligations do not allow partial performance.
• Obligations with a Penal Clause
  • Contain an accessory undertaking for greater liability upon breach.

Extinguishment of Obligations

• Payment/performance is the complete fulfillment of the obligation.
• Loss of the thing due involves the object's loss/destruction without the debtor's fault.
• Condonation/remission of debt is the creditor's gratuitous abandonment of their right.
• Confusion/merger of rights occurs when the creditor and debtor become the same person.
• Compensation occurs when two parties are each other's creditors and debtors.
• Novation involves the substitution or alteration of an obligation.
• Other causes of extinguishment include annulment, rescission, fulfillment of a resolutory condition, and prescription.

Contracts

• A contract is a meeting of minds where one party binds themselves to another to give something or provide a service.
• Governed by Article 1159 of the Civil Code, contracts have the force of law and must be complied with in good faith.

Elements of a Contract

• Essential elements are required for a contract to exist.
  • Consent includes the meeting of minds between parties.
  • Object is the contract's subject matter.
  • Cause is the reason for parties entering the contract.
• Natural elements are presumed to exist unless stipulated otherwise.
• Accidental elements are agreed upon and exist only when stipulated.

Characteristics of Contracts

• Obligatory force: Contracts have the power of law between parties.
• Mutuality: Contracts must bind all parties; validity cannot depend on one party's will.
• Relativity: Contracts affect only parties, their assigns, and heirs, unless rights/obligations are non-transferable.
• Consensuality: Contracts are perfected by consent, except real contracts (delivery) and solemn contracts (formalities).
• Freedom to contract: Parties can stipulate terms not contrary to law, morals, good customs, public order, or public policy.

Kinds of Contracts

• According to perfection:
  • Consensual contracts are perfected by consent.
  • Real contracts are perfected by object delivery.
  • Formal/Solemn contracts require specific formalities.
• According to cause:
  • Onerous contracts involve valuable consideration.
  • Gratuitous contracts involve no consideration in return.
  • Remuneratory contracts provide consideration for a benefit already received.
• According to importance/dependence:
  • Principal contracts can stand alone.
  • Accessory contracts depend on another contract.
  • Preparatory contracts are a means to an end.
• According to parties obligated:
  • Unilateral contracts obligate one party.
  • Bilateral contracts obligate both parties.
• According to name/designation:
  • Nominate contracts have a special legal name/designation.
  • Innominate contracts lack a special legal name/designation.

Stages of a Contract

• Negotiation involves bargaining between parties.
• Perfection/birth occurs when parties agree on contract terms.
• Consummation/termination occurs when obligations are fulfilled.

Defective Contracts

• Rescissible Contracts: Valid until rescinded; cause economic injury to a party or third person.
• Voidable Contracts: Valid until annulled; consent is defective due to incapacity or vitiation by mistake, violence, intimidation, undue influence, or fraud.
• Unenforceable Contracts: Cannot be enforced unless ratified; lack authority, violate the Statute of Frauds, or involve parties incapable of consent.
• Void/Inexistent Contracts: Produce no effect; lack essential elements or violate law, morals, good customs, public order, or public policy.

Remedies for Breach of Contract

• Specific performance is the exact fulfillment of the obligation.
• Rescission (resolution) is the cancellation of the contract.
• Damages involve monetary compensation for the injury suffered.
• Subsidiary remedies:
  • Accion subrogatoria allows creditors to exercise the debtor’s rights.
  • Accion pauliana allows creditors to impugn the debtor’s fraudulent acts.

Statute of Frauds

• Requires certain contracts to be written for enforcement.
• Prevents fraud and perjury.
• Covers contracts involving land sales, leases over one year, guarantees of another's debt, and agreements not performable within one year.