A practical legal article anchored on Philippine civil law principles (Civil Code and related doctrines)

I. Overview: Why “Obligations and Contracts” Matters

In Philippine private law, the rules on obligations and contracts form the backbone of everyday legal relationships—borrowing money, buying and selling, leasing, employment-related civil agreements, construction, services, online transactions, and settlement of disputes. The core framework is found in Book IV of the Civil Code of the Philippines, supplemented by special laws (e.g., consumer protections, negotiable instruments rules, electronic transactions, corporate and commercial statutes) and developed heavily through jurisprudence.

At its simplest:

An obligation is a juridical necessity to give, to do, or not to do.
A contract is a meeting of minds that creates obligations.

Not all obligations come from contracts—and not all agreements become enforceable contracts.

II. Obligations: Concept, Elements, and Sources

A. Definition and Elements of an Obligation

An obligation is a legal duty enforceable by court action. Its classic elements are:

Active subject (creditor/obligee) – the party entitled to demand performance
Passive subject (debtor/obligor) – the party bound to perform
Prestation (object) – what must be delivered, done, or refrained from
Juridical tie (vinculum juris) – the legal bond that makes it enforceable

B. Sources of Obligations (Philippine framework)

Obligations arise from:

Law – duties imposed by statute (e.g., support, taxes, duties of parents/guardians)
Contracts – voluntary agreements with legal force between parties
Quasi-contracts – lawful, voluntary acts creating duties to prevent unjust enrichment
Delicts (crimes) – civil liability arising from criminal acts
Quasi-delicts (torts) – negligence-based civil liability independent of contract

A key idea: No one may unjustly enrich oneself at the expense of another. This principle strongly informs quasi-contracts and restitution remedies.

III. Classifications of Obligations (and Why They Matter)

A. By Prestation

Obligation to Give
- Determinate (specific): a particular thing (e.g., “my Toyota Vios with plate X”)
- Generic: a class (e.g., “100 sacks of rice”) Core consequences:
- For specific things, the debtor must preserve the thing with proper diligence and deliver fruits/accessories in proper cases.
- For generic things, loss of a particular item typically doesn’t extinguish the duty (because “genus never perishes”).
Obligation to Do
- Performance of services or acts (construction, professional services, work output). Remedies may include:
- Specific performance (when feasible)
- Substitute performance at debtor’s cost
- Damages
Obligation Not to Do
- Prohibition (non-compete clauses in civil setting, restrictions, negative covenants). Remedy may be:
- Undoing what was done (if possible)
- Damages
- Injunction-like relief (through appropriate action)

B. By Demandability: Pure, Conditional, and With a Term

Pure obligation – immediately demandable
Conditional obligation
- Suspensive condition: obligation arises only upon happening of event
- Resolutory condition: obligation effective now but ends upon event Rules focus on:
- Effect of condition’s fulfillment or failure
- Retroactive effects in some cases
- Duties pending condition (e.g., preservation)
Obligation with a term (period)
- A future event certain to happen (or time that will come)
- The obligation is demandable only when the term arrives Acceleration may occur if debtor becomes insolvent, fails to give promised security, violates undertakings, or otherwise triggers grounds recognized by law/contract.

C. By Parties: Joint vs. Solidary

Joint obligation (default in many cases): each debtor liable only for his part
Solidary obligation: any debtor may be compelled to pay the whole; any creditor may demand the whole (if solidarity is on creditor side too) Solidarity must generally be express or clearly intended, or provided by law/nature of obligation.

Effects:

Payment by one solidary debtor extinguishes the obligation but gives that payer a right to reimbursement from co-debtors (subject to rules on shares, insolvency, etc.).
Defenses vary: personal defenses vs defenses inhering in the obligation.

D. By Divisibility: Divisible vs. Indivisible

Divisible: performance can be partially done without changing its essence
Indivisible: performance cannot be validly rendered in parts (often due to nature of thing/service or stipulation) Indivisibility is different from solidarity: one concerns performance, the other concerns liability structure.

E. By Object Structure: Alternative and Facultative

Alternative obligation – several prestations due, but compliance with one suffices
- Right of choice usually belongs to debtor unless expressly granted to creditor
- Choice produces legal effects only upon communication
Facultative obligation – only one prestation is due, but debtor may substitute another
- Loss rules differ from alternative obligations

F. By Penal Clause

A penal clause is an accessory undertaking to pay a penalty in case of breach, often to:

Strengthen compliance
Fix damages in advance
Avoid dispute on proof/amount of damages

Courts may reduce unconscionable penalties. Penalty may coexist with damages/interest only when the law or stipulation allows.

IV. Performance, Breach, and Delay (Mora)

A. Proper Performance (Payment or Performance)

“Payment” legally means fulfillment of the prestation, not only money. Proper performance generally requires:

Identity: deliver exactly what is due
Integrity: complete performance
Time and place compliance
Manner consistent with agreement, law, and good faith

B. Delay (Mora)

Delay matters because it triggers damages and shifts risk in some cases.

Types commonly discussed:

Mora solvendi – debtor’s delay
Mora accipiendi – creditor’s delay (refusal to accept without valid reason)
Compensatio morae – delay on both sides in reciprocal obligations

Delay generally begins when:

The obligation is due and demandable, and
Demand (judicial or extrajudicial) is made, unless demand is not required (e.g., time is of the essence, demand would be useless, obligation or law so provides).

C. Fraud, Negligence, and Fortuitous Events

Fraud (dolo)
- Intentional evasion of obligation
- Liability for fraud is generally not waivable in advance
Negligence (culpa)
- Lack of due care; standard may be stipulated, statutory, or that of a “good father of a family” (reasonable diligence)
- Courts may consider contributory negligence in appropriate contexts
Fortuitous event (force majeure)
- Unforeseen or unavoidable event preventing performance
- Debtor typically not liable unless:
  - Law or stipulation imposes liability
  - Debtor is in delay
  - Nature of obligation requires assumption of risk
  - The thing is generic or risk allocation differs

V. Remedies for Breach and the Law on Damages

A. Principal Remedies

Depending on the obligation and breach:

Specific performance (or exact fulfillment)
Rescission (in reciprocal obligations)
Resolution/cancellation (often used in contracts)
Damages
Substitute performance (for obligations to do)
Injunction-type relief (for obligations not to do, via proper action)
Reformation (if instrument doesn’t reflect true intent)
Annulment (voidable contracts)
Declaration of nullity (void contracts)

B. Kinds of Damages (Civil Code taxonomy)

Actual/compensatory – proven loss and unrealized profits (with reasonable certainty)
Moral – mental anguish, serious anxiety, etc., in cases allowed by law
Nominal – to vindicate a right where no substantial loss shown
Temperate (moderate) – loss occurred but cannot be proved with certainty
Liquidated – agreed by parties (subject to reduction if unconscionable)
Exemplary (punitive) – by way of example, typically requiring bad faith/gross negligence and in addition to other damages

C. Interest

Interest may be:

Compensatory (as damages for delay)
Conventional (stipulated) Philippine practice recognizes that courts apply legal interest based on prevailing rules and jurisprudence; stipulated rates may be scrutinized for unconscionability, and interest awards often differ for (a) loans/forbearance vs (b) damages in general obligations.

VI. Extinguishment of Obligations

Obligations end through recognized modes, including:

Payment/Performance – proper fulfillment
Loss of the thing due – primarily for obligations to give a specific thing, subject to rules (delay, fault, assumption of risk)
Condonation/Remission – gratuitous abandonment of right by creditor (may require proof and sometimes acceptance)
Confusion/Merger – creditor and debtor become the same person in same obligation
Compensation (set-off) – parties are mutually debtor and creditor; may be legal, conventional, judicial, or facultative
Novation – substitution or modification that extinguishes old obligation and creates a new one
- Objective (change in object/conditions)
- Subjective (change of debtor/creditor)
- Mixed Novation is never presumed; intent to novate must be clear or incompatibility must be substantial.

Related practical device:

Consignation (deposit with court) may extinguish obligation when creditor unjustly refuses to accept, is absent/unknown, or acceptance is impossible, subject to procedural requisites.

VII. Contracts: Definition, Autonomy, and Limits

A. Definition and Essential Characteristics

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Core principles:

Autonomy of contracts: parties may stipulate terms
Obligatory force: contracts have the force of law between parties
Mutuality: validity and compliance cannot be left solely to one party’s will
Relativity: contracts bind only the parties, their assigns, and heirs (with exceptions)

B. Limits: What Parties Cannot Contract For

Even with freedom to stipulate, terms must not be:

Contrary to law
Contrary to morals
Contrary to good customs
Contrary to public order
Contrary to public policy

Courts also police:

Bad faith and abuse of rights
Unconscionable stipulations (especially in adhesion contracts)

VIII. Essential Requisites of a Valid Contract

A contract generally requires:

Consent of the contracting parties
Object certain and lawful
Cause/consideration that is lawful

A. Consent: Offer and Acceptance

Consent is shown by the concurrence of offer and acceptance on the thing and the cause.

Key rules:

Offer must be definite; acceptance must be absolute (qualified acceptance is a counter-offer).
Consent may be expressed or implied.
Acceptance generally must be communicated, subject to special doctrines and factual contexts.

Vices of Consent (make contract voidable)

Mistake (error) – substantial mistake as to object or conditions principally moving the parties
Violence or intimidation – consent extracted by force or fear
Undue influence – taking improper advantage of power over another
Fraud (dolo causante) – deception that induces consent

B. Object: Must Be Lawful and Possible

The object must be:

Within commerce of humans
Not impossible
Not contrary to law/morals/public policy
Determinate or determinable without new agreement

C. Cause: Why Each Party Binds Themselves

Cause differs per contract type:

Onerous: prestation/promise of the other party
Gratuitous: liberality of the benefactor
Remuneratory: service/benefit previously rendered

Contracts with illegal cause are void.

IX. Form of Contracts: When Writing Is Required

A. General Rule: Consensual

Most contracts are valid in whatever form, as long as the requisites exist.

B. Exceptions: Formal or Real Contracts

Some contracts require:

A particular form for validity or enforceability (e.g., certain donations, real property transactions with formalities in specific contexts)
Delivery (real contracts) for perfection in certain arrangements (in traditional classifications)

C. Statute of Frauds (Enforceability Rule)

Certain agreements must be in writing to be enforceable (not necessarily to be valid), typically including:

Agreements not to be performed within one year
Sale of goods above certain value thresholds (historically recognized in rules)
Sale of real property or an interest therein
Agreements to answer for the debt of another
Other categories recognized in the Civil Code framework

Important: The Statute of Frauds is commonly a defense; partial performance and other doctrines may affect its application.

X. Contract Interpretation and Construction

When disputes arise, courts aim to discover intent and apply rules such as:

If terms are clear, literal meaning controls
If ambiguous, interpretation leans toward what is most consistent with the nature and object of the contract
Stipulations should be read together, not in isolation
Doubts in onerous contracts may be resolved in favor of greatest reciprocity; in gratuitous contracts, in favor of least transmission of rights/interest
Adhesion contracts (take-it-or-leave-it) are not automatically void, but ambiguities are often construed against the drafter and unconscionable terms may be struck down

XI. Defective Contracts: Four Major Categories

Philippine civil law classifies defective contracts into:

A. Rescissible Contracts

Valid and enforceable but may be rescinded due to economic prejudice or damage, often involving:

Lesion or damage in certain cases
Fraud on creditors (accion pauliana conceptually) Rescission here is a remedy to address harm, not simply breach.

B. Voidable (Annullable) Contracts

Valid until annulled; defect is in consent or capacity.

Can be ratified
Action prescribes within periods set by law (context-dependent)

C. Unenforceable Contracts

Cannot be enforced unless ratified or unless proper authority/form exists, often including:

Unauthorized contracts in the name of another
Contracts covered by Statute of Frauds (absent writing, subject to exceptions/ratification)
Certain contracts involving incapacity where representation rules apply

D. Void (Inexistent) Contracts

Produce no legal effect; cannot be ratified. Common grounds:

Illegal object or cause
Absolutely simulated contracts
Contracts contrary to law/morals/public policy
Contracts that are impossible Restitution principles may apply, but courts will not aid a party in pari delicto (equal fault) subject to recognized exceptions.

XII. Reciprocity, Rescission for Breach, and Risk Allocation

A. Reciprocal Obligations and “Rescission/Resolution”

In reciprocal contracts (e.g., sale: deliver vs pay), a substantial breach may entitle the injured party to:

Demand fulfillment or
Seek rescission/resolution, plus damages

Courts evaluate:

Substantiality of breach
Good faith
Feasibility of performance
Equities between parties

B. Risk of Loss and Transfer of Ownership (Practical Context)

In sales and transfers, disputes often hinge on:

When ownership passes
When risk passes
Whether delivery occurred (actual or constructive)
Whether the buyer was in delay, etc.

While detailed sales rules belong to special contract provisions, the general obligations rules on loss, delay, and fortuitous events often determine liability.

XIII. Third Parties, Assignments, and Contract Relativity

A. Relativity Rule

Contracts generally bind only parties, heirs, and assigns.

B. Key Exceptions (common in Philippine practice)

Stipulation pour autrui (stipulation in favor of a third person): third party may demand if acceptance is communicated before revocation
Real rights created by contract may bind third parties upon proper registration/notice (property law interface)
Fraudulent contracts may be attacked by creditors under appropriate actions
Tort/quasi-delict liability may exist alongside contract in certain fact patterns

C. Assignment and Subrogation

Rights may be assigned unless prohibited by law, stipulation, or nature
Subrogation may occur by agreement or operation of law, transferring rights to a third person who paid

XIV. Philippine Litigation and Evidence Realities (Practical Notes)

A. Written Documents and Proof

Even when a contract is consensual, proof problems arise without documentation. In court, parties often rely on:

Written contracts, invoices, receipts, purchase orders
Electronic communications (texts, emails, chats)
Testimony (subject to evidentiary rules)
Course of dealing and trade usage

B. Bad Faith and Abuse of Rights

Philippine civil law recognizes accountability for:

Willful injury, acts contrary to morals/good customs/public policy
Abuse of rights—exercise of a right in a way that unjustly harms another These concepts often support moral/exemplary damages in appropriate cases.

XV. Obligations and Contracts in Modern Philippine Context

A. Contracts of Adhesion (common in banks, telecoms, apps, utilities)

Courts scrutinize:

Hidden or one-sided stipulations
Waivers of rights that offend policy
Excessive penalties and interest
Lack of meaningful consent

B. Electronic Agreements and Online Transactions

Click-wrap/online acceptance can establish consent if it reasonably shows:

Notice of terms
Manifestation of assent
Ability to review terms Authenticity and integrity of electronic evidence become central in disputes.

C. Consumer Transactions

Special consumer rules can affect:

Warranty obligations
Unfair contract terms
Remedies for defective goods/services The Civil Code remains foundational, but consumer protection statutes may supply additional rights and standards.

XVI. A Practical Checklist for Analyzing Any Obligations-and-Contracts Problem

Identify the source of obligation (law, contract, quasi-contract, delict, quasi-delict).
Determine the prestation (give/do/not do) and whether it’s specific or generic.
Check if obligation is demandable now (pure/conditional/with term).
Map liability: joint or solidary, divisible or indivisible, alternative or facultative.
Determine if there is delay, and whether demand is required.
Assess defenses: payment, novation, compensation, impossibility/fortuitous event, nullity, vitiated consent, Statute of Frauds, etc.
Choose remedy: specific performance, rescission/resolution, damages, restitution, reformation, annulment, consignation.
For damages: classify and prove—actual vs temperate vs nominal; moral/exemplary only when legally justified.
Evaluate form and proof: writing requirements, authority, and evidentiary support.
Apply good faith, public policy, and equity considerations where the Civil Code and jurisprudential doctrines typically operate.

XVII. Conclusion

Philippine obligations and contracts law is a structured system: obligations define enforceable duties; contracts are a major (but not exclusive) source of those duties. The Civil Code provides the general architecture—how obligations arise, how they are performed, what constitutes breach, what remedies follow, and how contractual consent and validity are measured. Philippine legal practice then applies these rules through factual nuance: documentation, good faith, fairness, and the realities of modern commerce—including online agreements and mass-market contracts.

If you want, a clean way to “master” the topic is to work from: (1) sources of obligations → (2) types of obligations → (3) breach and remedies → (4) contract requisites and defective contracts → (5) extinguishment and practical litigation proof.