Obligations and Contracts: Civil Code of the Philippines

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

Obligations

• Article 1156 defines obligation as 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 of legal action
• Persons with obligations must comply with requirements, considering potential damages to contracting parties or third persons
• Non-compliance can lead to actions like demands for payment and damages
• There are three kinds of obligations: to give, to do, or not to do
• Obligation to give requires the debtor to deliver a movable or immovable thing to the creditor, such as in sale, deposit, or donation
• Obligation to do covers all kinds of works or services, physical or mental, like event organizing or professional services
• Obligation not to do means refraining from certain acts, such as a building proprietor avoiding nuisance through noise, odor, smoke, or heat

Elements of an Obligation

• Every obligation requires four elements for it to exist
• Active subject: The party demanding performance, also known as the creditor or obligee
• Passive subject: The party bound to perform, known as the debtor or obligor
• Object or prestation: The subject matter of the obligation with economic value
• Juridical or legal tie: The vinculum binding the parties, such as a sales or service contract

Sources of Liability

• The sources of liability (for damages) for a party in an obligation:
• Fraud, which is incidental fraud during obligation performance, intending to evade fulfillment and cause damage
• Negligence, specifically culpa contractual in contracts, refers to lack of diligence or carelessness, omitting required diligence based on circumstances
• Delay occurs when those obliged to deliver or do something fail to meet the stipulated period, and the obligee demands fulfillment

Sources of an Obligation

• Article 1157 enumerates the sources of obligation:
• Law
• Contracts
• Quasi-contracts
• Delicts or acts/omissions punishable by law
• Quasi-delicts
• Law: Obligations arise from the law itself, like the duty of a taxpayer to pay taxes
• Contracts: Duty to fulfill undertakings in a contract, like paying for excess attendees at a catering event
• Quasi-contracts: Lawful, voluntary, unilateral acts based on preventing unjust enrichment, such as solutio indebiti (payment by mistake) and negotiorum gestio (managing abandoned business)
• Delicts: Obligations from crimes, governed by the Revised Penal Code and Civil Code provisions on damages
• Quasi-delicts: Acts causing damage to another due to fault or negligence without a pre-existing contract

Diligence Needed

• Article 1163 states that every person obliged to give something must take care of it with the diligence of a good father of a family, unless otherwise specified

Modes of Extinguishing Obligation

• Article 1231 lists ways obligations are extinguished:
• Payment or performance
• Loss of the thing due
• Condonation or remission of debt
• Confusion or merger of rights
• Compensation
• Novation
• Other causes include annulment, rescission, fulfillment of resolutory condition, and prescription
• Obligations are extinguished when a restaurant guest pays for the food consumed
• Obligations from a contract can be extinguished if the thing due is lost without fault or negligence of the obligor – According to Article 1189 (2), loss means the thing perishes, goes out of commerce, or disappears so its existence is unknown

Fortuitous Event

• Exempts an obligor from liability if events are extraordinary, not foreseeable or avoidable
• Fortuitous events may be produced:
  • By nature, such as earthquakes, storms, and floods
  • By the act of men, such as armed invasion, attack by bandits, and robbery, requiring an imposition the debtor could not resist
• Condonation or remission is when the creditor forgives a debt
• Obligations are extinguished when the roles of creditor and debtor merge in one person

Compensation

• Compensation offsets obligations of two parties who are principal creditors and debtors to each other, extinguishing obligations to their concurrent amount

Novation

• Novation changes or modifies an obligation, extinguishing the old one, requiring:
  • A previous valid obligation
  • An agreement by the parties to extinguish or modify the old obligation
  • Validity of the new obligation
• Death extinguishes obligations that are purely personal

Application of the Law

• Mr. Danny Ramos can hold Mr. Aldeguer liable for damages because CM Wine Company was not able to fulfill its obligation without any justifiable cause

Contracts

• Article 1305 defines a contract as a meeting of minds where one binds oneself to give or render some service
• Essential elements of a contract are consent, object certain, and cause of the obligation
• A contract of adhesion is one drafted by one party, where the other party only affixes their signature
• Contracts of adhesion are valid but can be voided if the weaker party is imposed upon

Characteristics of a Contract

• Mutuality: Validity and performance cannot depend on one party's will
• Autonomy: Parties can stipulate terms not contrary to law, morals, good customs, public order, and public policy
• Relativity: Contracts bind only the parties and their successors-in-interest, with exceptions like stipulations in favor of a third person
• Consensuality: Contracts are perfected by mere consent, except for real contracts and those under the Statute of Frauds
• Obligatory Force: Contracts constitute the law between parties and compel performance

Contract Stages

• Generation: Preliminary stage, including bargaining
• Perfection: Birth of the contract
• Consummation: Fulfillment of the contract's purpose

Defective Contracts

• Rescissible Contract: Valid but defective due to injury or damage, rescindable through proper action
• Voidable Contract: Valid until annulled, with consent vitiated by lack of capacity or by mistake, violence, intimidation, undue influence, or fraud
• Unenforceable Contract: Cannot be enforced unless ratified, due to lack of authority, non-compliance with the Statute of Frauds, or lack of legal capacity
• Void Contract: Inexistent by law, conferring no right to any party, and is contrary to law, morals, good customs, public order, or public policy