Introduction to Contracts and Obligations

KOLEHIYO NG LUNGSOD NG DASMARIÑAS BRGY. BUROL MAIN, CITY OF DASMARIÑAS, CAVITE, PHILIPPINES 4114 Law on Contracts and Obligations Introduction to Contracts and Obligations Module 1 Course Overview In this module, Information Systems (IS) students will learn the foundati...

KOLEHIYO NG LUNGSOD NG DASMARIÑAS BRGY. BUROL MAIN, CITY OF DASMARIÑAS, CAVITE, PHILIPPINES 4114 Law on Contracts and Obligations Introduction to Contracts and Obligations Module 1 Course Overview In this module, Information Systems (IS) students will learn the foundational principles of contracts and obligations, with an emphasis on how they relate to the IS field. Contracts play a crucial role in shaping the interactions between businesses, individuals, and technology systems, and understanding the nature of obligations is essential for ensuring compliance, security, and effective operations. Learning Objectives LO1: Define contracts and obligations in the context of business law. LO2: Identify key elements of a valid contract. LO3: Explain classifications of obligations and contracts. LO4: Discuss the relevance of contracts to IS professionals. LO5: Relate contracts to SDG 16 (Peace, Justice, and Strong Institutions) and KLD Tenet: Governance. CHAPTER I: GENERAL PROVISIONS I. Definition Obligation Article 1156 of Civil Code An obligation is a juridical necessity to give, to do or not to do. JURIDICAL NECESSITY – juridical tie; connotes that in case of noncompliance, there will be legal sanctions. Introduction to Contracts and Obligation I. Definition and Nature of Obligation The term obligation is derived from the Latin word “obligatio” which means a “tying” or “binding (1) It is a tie of law or a juridical bond by virtue of which one is bound in favor of another to render something — and this may consist in giving a thing, doing a certain act, or not doing a certain act. Introduction to Contracts and Obligation I. Definition and Nature of Obligation (2) Manresa defines the term as “a legal relation established betwee n one party and another, whereby the latter is bound to the fulfillment of a prestation which the former may demand of him.” (8Manresa 13.) 3) Article 1156 gives the Civil Code definition of obligation, in its passive aspect. Our law merely stresses the duty of the debtor or obligor (he who has the duty of giving, doing, or not Article 1157 Obligation arises from: 1. Law; 2. Contracts; 3. Quasi-Contracts; 4. Act or omissions punished by law; and 5. Quasi-delicts Introduction to Contracts and Obligation I. Definition and Nature of Obligation Sources of Obligation 1. Law (Obligations Arising from Laws) Laws create obligations for individuals, businesses, and organizations. In the field of Information Systems, various national and international laws impose requirements on the handling of data, the development of systems, and the protection of information. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 1. Law (Obligations Arising from Laws) Examples of Relevant Laws: Data Privacy Act of 2012 (Republic Act No. 10173): Requires companies handling personal data to protect it from breaches and unauthorized access. IS students should understand that businesses have an obligation to implement cybersecurity measures and ensure data confidentiality. Cybercrime Prevention Act of 2012 (Republic Act No. 10175): Criminalizes online offenses such as hacking, cyber fraud, and identity theft. Information systems professionals are legally obligated to prevent these crimes through secure coding, monitoring systems, and reporting violations. National Privacy Commission (NPC): The NPC enforces the Data Privacy Act, and companies must comply with its regulations to avoid legal consequences. Obligations: Implement security measures for protecting personal and sensitive data. Maintain secure software and systems that prevent cybercrimes. Ensure compliance with privacy laws. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 2. Contracts (Obligations Arising from Agreements) In Information Systems, obligations often arise from contracts between companies, clients, and developers. A contract can be formed when a business hires a developer, or when a company licenses software. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 2. Contracts (Obligations Arising from Agreements) Examples: Software Development Agreement: A contract between a client and a developer that specifies deliverables, timelines, and security protocols for the software being developed. Both parties have obligations to meet the terms of the contract, such as maintaining confidentiality and meeting deadlines. Service Level Agreements (SLAs): Agreements between IT service providers and clients that define the scope of service, uptime guarantees, and response times for issues. Failure to meet these obligations may lead to penalties or lawsuits. Cloud Service Agreements: Obligations related to the storage, access, and protection of data in the cloud. The provider must ensure uptime, security, and compliance with privacy laws. Obligations: Fulfill the terms agreed upon in contracts. Maintain confidentiality, and secure the systems and data as required by the agreement. Provide timely delivery of IT services and solutions. Introduction to Contracts and Obligation I. Definition Obligation Sources of Obligation 3. Quasi-Contracts (Obligations Arising from Unilateral Acts or Unjust Enrichment) Quasi-contracts arise when one party benefits at the expense of another without an actual agreement. In Information Systems, quasi-contracts can arise when a party performs an act in the absence of an agreement but expects to be compensated. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 3. Quasi-Contracts (Obligations Arising from Unilateral Acts or Unjust Enrichment) Examples: Negotiorum Gestio (Management of Another’s Affairs): A situation where an IT professional is hired to temporarily manage a company’s network or software without a formal contract, and the company benefits from the services provided. The company must compensate the IT professional for their efforts. Solutio Indebiti (Undue Payment): If a company mistakenly pays for IT services that were not delivered or are unnecessary, it is obliged to return the money. Obligations: Compensate individuals for services rendered without a formal agreement. Rectify payments or contracts made in error. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 4. Acts or Omissions Punished by Law (Obligations Arising from Criminal Acts) In the context of Information Systems, unlawful acts or omissions that result in damage to others can give rise to civil liabilities in addition to criminal liability. Acts such as hacking, data theft, and cyberbullying fall under this category. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 4. Acts or Omissions Punished by Law (Obligations Arising from Criminal Acts) Examples: Intellectual Property Infringement: Unauthorized copying or distributing of software or proprietary information without permission violates intellectual property rights and may lead to legal consequences. Cybercrime: If an Information Systems professional is involved in cybercrimes such as hacking into systems, data theft, or creating malicious software, they will face both criminal penalties and civil obligations to compensate victims. Obligations: Make restitution or compensation for damages caused by criminal activities (e.g., reimbursement for stolen data or repair of damaged systems). Ensure that systems are secure to prevent any illegal access or misuse of data. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 5. Quasi-Delicts (Torts or Civil Wrongdoings) A quasi-delict refers to a civil wrong or injury caused by negligence or wrongful conduct, without the need for a contractual relationship between the parties. Information Systems students need to understand that negligence in the design or maintenance of systems can result in damage to users, companies, or society at large. Introduction to Contracts and Obligation I. Definition of Obligation Sources of Obligation 5. Quasi-Delicts (Torts or Civil Wrongdoings) Examples: Negligence in System Security: If a company’s database is compromised due to inadequate security measures or failure to update security protocols, the company may be required to compensate users whose data was compromised. Software Bugs or Glitches: If a software application causes financial loss or damage to users due to negligence in its development (e.g., failure to perform proper testing or debugging), the developer may be held liable. Obligations: Take reasonable care to prevent harm to users by implementing security protocols and best practices. Compensate victims for damages caused by negligence or faulty systems. Article 1158. “Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. Unless such obligations are EXPRESSLY provided by law, they are not demandable and enforceable, and cannot be presumed to exist. Article 1159 “Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.” Explanation: Force of Law: Once a contract is validly formed, it becomes binding on the parties as if it were a law specifically made for them. This means the parties must strictly follow the terms and conditions they have agreed upon unless the contract is contrary to law, morals, good customs, public order, or public policy. Good Faith Compliance: Parties must honor their contractual obligations with honesty, fairness, and sincerity. Acting in bad faith—such as deliberately failing to fulfill obligations or taking advantage of loopholes—violates this principle and can lead to legal consequences. Article 1160. “Obligations derived from quasi-contracts shall be subject to the provisions of Chapter I, Title XVII of this Book.” Quasi-contracts are designed to promote equity and justice by ensuring no one is unjustly enriched or suffers a loss without due compensation. Article 1161 “Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and the pertinent provisions of chapter 2, Preliminary title on Human Relations, and to Title XVIII of this Book, regulating damages.” This statement explains that civil obligations arising from criminal offenses are rules that require a person who committed a crime to compensate for the damage or harm they caused to another person. These civil obligations are separate from criminal penalties like imprisonment or fines. CHAPTER II GENERAL PROVISIONS I. Nature and Effect of Obligation Article 1163 Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. This statement reflects Article 1163 of the Civil Code of the Philippines, which governs the obligation to exercise proper care and diligence in fulfilling a duty to deliver something. Article 1164 The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. Article 1164 of the Civil Code of the Philippines, which discusses the creditor's right to the fruits (benefits) of an object that is the subject of an obligation, and when ownership is transferred. Article 1165 When what is to be delivered is a determinate thing, the creditor... may compel the debtor to make delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Article 1166 The obligation to give a determinate thing includes that of delivery of all its accessions and accessories, even though they may not have been mentioned. Article 1167 If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. Article 1168 “When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense.” Article 1169. Those obliged to deliver or to do something incur in delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or other begins. (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. Article 1170 “Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.” Article 1171 “Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void.” Article 1172 “Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.” Article 1173 The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. Article 1174 Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. Article 1175 Usurious transactions shall be governed by special laws. Usurious transactions are not governed by the general provisions on obligations and contracts, but by special laws that regulate how loans and interest rates are to be structured. These laws exist to protect consumers from the negative impacts of predatory lending and to ensure fairness in financial transactions. The key point is that no one can impose interest rates that are excessively high, and the government has mechanisms in place to regulate these practices. Article 1176 The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. Article 1177 The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. Article 1178 Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. Introduction to Contracts and Obligation I. Definition and Nature of Obligation Nature of Obligation 1. Bilateral: It involves two parties with mutual duties. 2. Legal Binding: It has legal consequences and can be enforced by law. 3. Enforceable: Breaches of the obligation can lead to legal action. 4. Conditional: Some obligations depend on certain conditions. 5. Performance and Non-performance: The obligation must be performed, or else legal remedies may be sought. 6. Remedies for Breach: There are various legal remedies such as damages or specific performance. Introduction to Contracts and Obligation II. Essential Requisites of Obligation and Contracts Elements of Obligation (Civil Code of the Philippines) 1. Active Subject (Creditor/Obligee) This is the person or entity who has the right to demand the performance of the obligation. In the context of Information Systems or digital contracts, this could be an individual, a company, or even a government agency that holds the right to receive certain services, products, or outcomes. Example: A client or user who purchases a software license has the right to demand software updates or support from the software provider. Introduction to Contracts and Obligation II. Essential Requisites of Obligation and Contracts Elements of Obligation (Civil Code of the Philippines) 2. Passive Subject (Debtor/Obligor) The person or entity who is bound to fulfill the obligation. The passive subject must perform the task or duty assigned in the contract or agreement. Example : A software developer or IT service provider is the passive subject who is obligated to deliver software updates, maintain servers, or ensure system uptime as per the service agreement. Introduction to Contracts and Obligation II. Essential Requisites of Obligation and Contracts Elements of Obligation (Civil Code of the Philippines) 3. Object or Subject Matter The object refers to the thing, service, or benefit that the obligation pertains to. In the case of Information Systems, the object can include software, hardware, licenses, data, or even services like hosting or cloud storage. Example: In a Software-as-a-Service (SaaS) agreement, the object is the access to the software application and the data services provided through the platform. Introduction to Contracts and Obligation II. Essential Requisites of Obligation and Contracts Elements of Obligation (Civil Code of the Philippines) 4. Cause (Reason for the Obligation) The cause is the reason or purpose for which the obligation exists. It is the underlying rationale for entering into the agreement. The cause must be lawful and not contrary to law, morals, or public policy. Example: In a digital contract, the cause could be the exchange of a software product for payment or the provision of tech support services to ensure operational continuity of a client’s system. Introduction to Contracts and Obligation II. Essential Requisites of Contracts Introduction to Contracts and Obligation III. Classification of Obligation and Contracts Introduction to Contracts and Obligation III. Classification of Obligation and Contracts References https://www.scribd.com/document/558985701/Obligations-and-Contr acts-Hector-de-Leon https://www.studocu.com/ph/document/laguna-university/bachelor-o f-science-in-accounting-information-system/business-law-the-law-on-o bligation-and-contracts/24543624