Obligations and Contracts

Obligation
According to Art.1156, an obligation is a juridical necessity to give, to do, or not to do.
Obligations arises from the law, contracts, quasi-contracts, acts of omission punished by
law, and quasi-delicts. The elements of Obligations are Active subject, passive subject,
and prestation or object.
The active subject in an obligation refers to the person or party who has the duty or
responsibility to perform a certain action or fulfill an obligation. They are the party bound
by the obligation to take action. The active subject is also commonly referred to as the
"obligor" or "promisor." They are the one who undertakes to do something or give
something to the other party.
The passive subject in an obligation is the person or party to whom the obligation is
owed. They are the recipient or beneficiary of the action or performance. The passive
subject is also commonly referred to as the "obligee" or "promisee."
The prestation, also known as the object, is the specific action, service, or thing that is
the subject matter of the obligation. It represents what the active subject is obliged to
give, do, or refrain from doing. The prestation can be a tangible or intangible item, a
service, an act, or even the abstention from performing a certain action.
The kinds of prestation are: to give, which refer to the requirement to provide something
to someone else. They typically involve transferring ownership or possession of an
object, money, or resources; to do, that involve performing a specific action or carrying
out a task or responsibility. They require individuals to actively engage in an activity or
provide a service; and Not to Do, which refer to restrictions or prohibitions on certain
actions. They require individuals to refrain from engaging in specific behaviors or
activities.
By law, obligations are defined to be not presumed. It is governed by the law itself and
agreement of the party is not necessary. By contract, obligations have that force of law
between the contracting parties and should be complied in good faith.
Contract
According to Article 1305, a contract is meeting of mind between two persons whereby
one bind himself, with respect to the other, to give something or to render some service.
In Article 1306, it is stated that contracting parties may establish stipulations, clauses,
terms, and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
Article 1308 states that the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. Contracts are perfected by mere
consent, and from that moment the parties are bound not only to the fulfillment of what
has been expressly stipulated, but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
The law will enforce the provisions of a valid contract; the law will not intervene to
impose more favorable contract terms. An existing contract can be altered by mutual
agreement, provided it is within the framework of the existing contract. The terms and
conditions of a contract can either be expressed or implied terms.
Expressed terms are the specific terms and conditions that are explicitly and clearly
stated by the parties in the contract. These terms are expressly agreed upon and
documented in writing or verbally during the negotiation and formation of the contract.
Expressed terms can include either written terms or oral terms.
Written Terms These can cover various aspects of the agreement, such as the scope of
work, payment terms, timelines, warranties, and dispute resolution mechanisms.
Oral Terms during discussions or negotiations. While oral terms can be more
challenging to prove in case of a dispute, they can still be considered expressed terms if
they are clearly agreed upon and supported by evidence or witness statements.
Implied terms are terms that are not explicitly stated in the contract but are still legally
binding and inferred by law or custom. These terms are not expressly agreed upon by
the parties but are considered necessary or reasonable to give effect to the contract or
to reflect the intentions of the parties. Implied terms can arise in several ways:
Statutory Implied Terms are terms that are implied by legislation or specific laws
applicable to the contract. For example, employment contracts may have implied terms
related to minimum wage requirements, working hours, or health and safety regulations.
Common Law Implied Terms: common law principles, developed through court
decisions over time, can imply certain terms into contracts. These terms are generally
based on the presumed intentions of the parties or on established legal principles. For
example, a construction contract may have an implied term that the work will be
performed with reasonable skill and care.
Customary Implied Terms: Implied terms can also arise from trade customs or practices
that are generally accepted in a particular industry or trade. These terms may not be
explicitly discussed but are understood to be part of the agreement based on the
customary practices of that industry.
Implied terms help fill gaps or address matters not specifically covered in the contract.
They ensure fairness, reasonableness, and the overall effectiveness of the contract,
even when certain aspects are not expressly mentioned.
Breach of contract occurs when one party fails to fulfill its obligations or violates the
terms and conditions outlined in a contract without a legal justification. It is a legal
concept that recognizes the harm caused when a party fails to perform as promised or
disrupts the agreed-upon terms of the contract.
Types of Breach:
Material Breach: A material breach is a significant violation of the contract that goes to
the heart of the agreement. It deprives the non-breaching party of the benefits they were
supposed to receive under the contract.
Minor Breach: A minor breach, also known as a partial breach, is a less substantial
violation that does not fundamentally undermine the contract or harm the non-breaching
party to a significant extent.
Anticipatory Breach: An anticipatory breach occurs when one party indicates, through
words or actions, that they do not intend to fulfill their contractual obligations in the
future. This breach can happen before the actual performance is due.
Actual Breach: An actual breach refers to a failure to perform or fulfill the contractual
obligations by the agreed-upon time or in the manner specified in the contract.
Consequences of Breach:
Damages: The non-breaching party may be entitled to seek damages as compensation
for the harm caused by the breach. Damages can be awarded to cover actual losses
incurred as a direct result of the breach.
Specific Performance: In certain cases, the non-breaching party may seek a court order
requiring the breaching party to fulfill their contractual obligations. This remedy is known
as specific performance and is typically sought when monetary compensation is
inadequate.
Termination of Contract: A serious breach, such as a material breach, may allow the
non-breaching party to terminate the contract and be relieved of further performance
obligations.
Restitution: In some situations, the non-breaching party may be entitled to restitution,
which involves returning any benefits or payments provided to the breaching party.
When a contract is breached or violated, the non-breaching party may seek remedies to
address the harm or loss suffered as a result. The specific remedies available depend
on the nature and severity of the breach, as well as the applicable laws and provisions
in the contract. Here are some common remedies for contract violation or breach:
Damages:
Damages are the most common remedy for contract breaches. They aim to
compensate the non-breaching party for the actual losses incurred due to the breach.
There are different types of damages that may be awarded:
 Compensatory Damages: These are designed to put the non-breaching party in
the position they would have been in if the breach had not occurred. They aim to
 cover actual losses and damages that are foreseeable and directly caused by the
breach.
 Consequential Damages: Consequential damages are awarded for losses that
are not directly caused by the breach but are reasonably foreseeable as a result
of the breach. They go beyond the direct damages and cover indirect or
consequential losses.
 Liquidated Damages: Some contracts may include a provision for liquidated
damages, which are predetermined and specified in the contract itself. They
represent a reasonable estimate of the damages that would arise from a breach.
Liquidated damages must be a genuine pre-estimate of the loss and not
considered a penalty.
 Punitive Damages: Punitive damages are rarely awarded in contract cases. They
are meant to punish the breaching party for their willful or malicious conduct
rather than compensate the non-breaching party for their losses. Not all
jurisdictions allow punitive damages for breach of contract.
Specific Performance:
Specific performance is an equitable remedy where a court orders the breaching party
to fulfill their obligations under the contract as originally agreed. It is typically available
when monetary damages are deemed inadequate to fully compensate the non-
breaching party. Specific performance is often sought in cases involving unique or
irreplaceable goods or services.
Rescission and Restitution:
Rescission is a remedy that seeks to cancel the contract and restore the parties to their
pre-contract position. It is typically pursued when the breach is significant or
fundamental. Restitution involves returning any benefits or payments received under the
contract.
Reformation:
Reformation is a remedy that allows the court to modify the terms of the contract to
reflect the original intent of the parties. It is typically used when the contract contains
errors, ambiguities, or provisions that are unconscionable.
Mitigation:
The non-breaching party has a duty to mitigate their damages. This means they are
required to take reasonable steps to minimize their losses and avoid unnecessary harm.
Failure to mitigate can impact the damages awarded.

Types of Valid Contracts

Written Contracts:
These contracts are documented in writing and signed by the parties involved. They
provide a clear record of the terms and conditions agreed upon by both parties.
Examples include employment contracts, lease agreements, and purchase agreements.
Oral Contracts:
These contracts are formed through spoken communication between the parties. While
they can be more difficult to prove in case of a dispute, oral contracts can still be legally
binding if all other elements of a valid contract are met. However, some jurisdictions
may require certain types of contracts to be in writing to be enforceable.
Express Contract:
An express contract is a contract where the terms and conditions of the agreement are
explicitly stated, either orally or in writing. It can be in the form of a formal written
document, such as a signed agreement, or a verbal agreement confirmed by the parties
involved. The key feature of an express contract is that the terms are clearly articulated
and agreed upon by the parties.
Implied Contract:
An implied contract is a contract where the terms are not explicitly stated, but rather
inferred from the conduct, actions, or circumstances of the parties involved. It arises
when there is an implied understanding between the parties that they will mutually fulfill
certain obligations. Implied contracts can be formed through the parties' behavior,
custom, or the nature of their relationship.
Unilateral Contract:
A unilateral contract is a contract in which one party makes a promise or an offer that
can be accepted through the performance of a specific act. The contract is formed and
becomes binding only when the act is completed. An example of a unilateral contract is
a reward offer, where a person promises to pay a reward if someone finds and returns
their lost item.
Bilateral Contract:
A bilateral contract is a contract in which both parties make promises or offers to each
other. It involves a mutual exchange of promises, and both parties are bound to perform
their respective obligations. Most commercial contracts, such as sales contracts or
service agreements, are bilateral contracts.
Executed Contract:
An executed contract is a contract in which all parties have fulfilled their obligations and
the contract is fully performed. Once the obligations are completed, it becomes an
executed contract. For example, when you purchase an item at a store and pay for it, it
is an executed contract because both parties have fulfilled their obligations.
Executory Contract:
An executory contract is a contract in which one or more parties have not yet fulfilled
their obligations. The contract is still in progress, and the parties involved have duties or
obligations remaining to be performed. For example, if you hire a contractor to renovate
your house, and they have started the work but have not completed it, it is an executory
contract.
Voidable Contract:
A voidable contract is a contract that is initially valid and enforceable, but due to certain
circumstances or legal reasons, one or more parties have the option to avoid or cancel
the contract. This may occur due to factors such as fraud, undue influence, duress, or
the incapacity of one of the parties. If a party with the power to avoid the contract
chooses to do so, the contract becomes voidable.
Valid Contracts under Seal:
A contract under seal, also known as a contract executed with a seal or a formal
contract, is a document that has a seal affixed to it. Historically, seals were used as a
formal indication of intention to be legally bound. While the use of seals is less common
in modern contract law, some jurisdictions still recognize contracts under seal as having
additional legal significance.

Types of Construction Contracts

Lump Sum or Fixed Price Contract:
In a lump sum contract, the contractor agrees to complete the project for a fixed price.
The scope of work and specifications are usually well-defined and detailed in the
contract documents. This type of contract transfers the risk of cost overruns or delays to
the contractor, making it suitable for projects with clear and well-defined requirements.
Cost Plus Contract:
Under a cost plus contract, the owner agrees to reimburse the contractor for the actual
cost of the project, including labor, materials, and overhead, plus an agreed-upon fee or
percentage for profit. This type of contract is often used when the project scope or
requirements are uncertain or subject to change. It allows for more flexibility but can
increase the owner's risk.
Time and Materials Contract:
A time and materials contract is similar to a cost plus contract but provides a separate
reimbursement for labor, materials, and equipment on an hourly or daily basis, along
with an agreed-upon markup or fee. This type of contract is commonly used for smaller
projects or when the scope of work is not well-defined.
Unit Price Contract:
In a unit price contract, the contractor provides a price for each unit of work or quantity
of materials specified in the contract. The total contract price is determined by
multiplying the unit prices by the actual quantities used or performed. Unit price
contracts are often used for projects where quantities or measurements play a
significant role, such as infrastructure or road construction.
Design-Bid-Build Contract:
The design-bid-build contract is a traditional procurement method where the owner
contracts separately with a designer/architect and a contractor. The designer develops
the project design and prepares construction documents, which are then put out to bid.
Contractors submit bids, and the owner selects the winning bidder. This contract
structure allows for clear separation of design and construction responsibilities.
Design-Build Contract:
In a design-build contract, the owner contracts with a single entity, the design-builder,
who is responsible for both the design and construction of the project. This integrated
approach can streamline the process, as the design-builder takes on the responsibility
for managing both design and construction aspects. It is often used for fast-track
projects or when the owner seeks a single point of responsibility.
Construction Management Contract:
Under a construction management contract, the owner hires a construction manager
(CM) who provides input during the design phase and oversees the construction
process. The CM works with various contractors and manages the project on behalf of
the owner. This contract type is often used for large or complex projects to leverage the
CM's expertise and coordination skills.
Public-Private Partnership (PPP) Contract:
A public-private partnership contract involves collaboration between a public entity (such
as a government agency) and a private company or consortium to develop and operate
a public infrastructure project. PPP contracts can be structured in various ways, such as
build-operate-transfer (BOT) or design-build-finance-operate (DBFO), and they often
involve long-term agreements.