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Concept and Definition:

A. Concept of Obligation

The conceptual foundation of obligation traces as far back to ancient Roman law
which defines obligation as a means of an undertaking or legally binding relationships
where one party promises the other party to perform some acts or to do something.
Ancient well-known Roman lawyers defined obligations based on their personal opinion,
which as a result has developed the concept of obligation. The concept of obligation by
both classical legal scholars was unilateral in character and discriminatory in nature
since it imposes obligation to do, to give or to render rights only on non-roman citizens
not the Romans. However, the institute of Justinian defines obligation as a legally
binding relations when Roman citizens undertake to perform certain acts or to do
something in accordance with the Roman law. Obligation defined in the institute of
Justinian, differed from the obligations defined in the classical Roman jurists in that the
institute defines obligation in the aspect that Roman citizens to carry out.

Definition of Obligation

- Black’s law dictionary defines obligation as “a legal duty or moral duty to do or

not to do something”.
- John Salmond defined obligation “something the law or morals command a
person to do a command that is made effective by the imposition of sanction if
a person failed to comply such a command”.
- French judges define the term obligation as “a legally binding relation to
another party is obliged to give or to do or not to do something”.

B. Concept of Contract

The Roman law of contracts, as found in the Byzantine emperor Justinian’s law
books of the 6th century CE, reflected a long economic, social, and legal evolution. It
recognized various types of contracts and agreements, some of them enforceable,
others not. A good deal of legal history turns upon the classifications and distinctions of
the Roman law. Only at its final stage of development did Roman law enforce, in
general terms, informal executory contracts—that is, agreements to be carried out after
they were made.

Contract law concepts must be properly understood before you enter into a
contract with an individual or organization. A contract is a legally-binding agreement that
obligates two or more parties to complete certain tasks. In order for a contract to be
legally enforceable, it must contain certain elements and comply with contract law.
Knowledge of contract law concepts can help you create a proper contract more
efficiently and avoid unnecessary issues in the future.
Definition of Contract

- in the simplest definition, a promise enforceable by law. The promise may be

to do something or to refrain from doing something. The making of a contract
requires the mutual assent of two or more persons, one of them ordinarily
making an offer and another accepting. If one of the parties fails to keep the
promise, the other is entitled to legal redress. The law of contracts considers
such questions as whether a contract exists, what the meaning of it is,
whether a contract has been broken, and what compensation is due the
injured party.
- A contract refers to an agreement between two or more individuals or
organizations to perform or refrain from performing some acts in the present
or future. In other words, it is a legally-binding exchange of promises.

C. Essential Elements
 Obligation
- the obligor: obligant duty-bound to fulfill the obligation; he who has a duty.
- the obligee: obligant entitled to demand the fulfillment of the obligation; he
who has a right.
- the subject matter, the prestation: the performance to be tendered.
- a legal bond, the vinculum juris: the cause that binds or connects the
obligants to the prestation.
 Contract
 Offer - First, an offer must be extended in order to begin a contract. This
should include details of the agreement and its terms and conditions. Simply
put, the offer is the offeror's attempt at entering into a contract with another.
 Acceptance - Once the offer is extended, it's in the hands of the offeree to
either accept or reject the proposal and its terms and conditions. Offerees can
accept offers via mail, email, or verbally.
 Meeting of the Minds - The meeting of the minds in contract law refers to the
moment when both parties have recognized the contract and both agreed to
enter into its obligations.
 Consideration - Something of value must be exchanged in order to have a
valid legal agreement. Usually, things like products, property, protection, or
services are offered for the exchange of money.
  Capacity - Each party must be fully able or have the legal capacity to enter
into the contract in order for it to be considered valid. For instance, you
cannot enter into a legal contract with a three-year-old. Both parties must be
of their right mind in order to form a contract, so a valid agreement could not
take place if one of the parties is under the influence of any mind-altering
substance.
 Legality - Contracts cannot be created to govern the trade of illegal products
or services. A drug dealer cannot enforce a contract with their buyer if their
buyer doesn't pay them.

2. Sources of Obligation:

a. Law - 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.
b. Contracts - Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
c. Quasi-Contracts – This are judicial relation arising from certain
lawful,voluntary and unilateral acts by virtue of which the parties become
bound to each other based on the principle that no one shall be unjustly
enriched or benefited at the expenses of another.
d. QUASI DELICTS or TORTS – When they arise from damages caused to
another, there being fault or negligence, giving rise to the obligation to pay for
the damage done. There must be no pre-existing contractual relation between
the parties.
e. ACTS OR OMISSIONS PUNISHED BY LAW – Civil liability is arised and it is
the consequences of the criminal offense committed.
3. Default
A. Condition for default and consequences to attach
In finance, default is failure to meet the legal obligations (or conditions) of a
loan, for example when a home buyer fails to make a mortgage payment, or
 when a corporation or government fails to pay a bond which has reached
maturity. A national or sovereign default is the failure or refusal of a
government to repay its national debt. The biggest private default in history is
Lehman Brothers, with over $600 billion when it filed for bankruptcy in 2008.
The biggest sovereign default is Greece, with $138 billion in March 2012.
Defaulted loans are reported to all national credit bureaus, which can
negatively affect the borrower's credit rating and ability to purchase a car or
home in the future.
In addition to receiving a bad credit rating:
 the entire unpaid amount of the loan, including interest, will become
immediately due and payable;
 the borrower may be liable for collection costs;
 the borrower may lose future eligibility for financial aid and/or
educational loans;
 the references supplied on the loan application may be contacted;
 the borrower may lose deferment and forbearance options;
 federal and state tax refunds may be withheld and applied to the loan
balance;
 the borrower's Illinois professional license renewal may be denied;
 the borrower's employer may withhold part of his/her salary for
payment of the loan;
 the loan may be referred to a collection agency; and
 legal action may be taken against the borrower.
The borrower will still be required to pay the loan!
B. Demand
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays
performance; and third, the creditor judicially or extra judicially requires the
debtor’s performance.
 C. Exception
A waiver of exemption was a provision in a consumer credit contract or loan
agreement which allowed creditors to seize, or threaten the seizure, of
specific personal possessions or property. The property attached by the loan
could include a borrower's primary place of residence. Lenders could enact
this clause, even if state law held the property exempt from seizure.
Before 1985, waivers of exemption were common in credit contracts. Their
use was a way for creditors to secure a loan which may not have been
available without the waiver clause. In case of a default, the provision
provided the lender an avenue to recoup expenses through the selling of the
property listed as securing the loan. Instead, the laws are meant to prohibit
smaller lenders such as those in furniture, appliance, auto dealership, or
department store from attaching a lien against the debtor's home. Any
borrower who signed a waiver of exemption made such exempt property
available to a creditor who obtained a judgment to satisfy a debt.
4. Negligence
A. Standard of care
Standard of care refers to the the degree of attentiveness, caution and
prudence that a reasonable person in the circumstances would exercise.
Failure to meet the standard is negligence, and the person who fails to meet
the standard is liable for any damages caused by such negligence. The
standard is not subject to a precise definition and depends is judged on a
case by case basis. Certain standards for professionals are established by
practice of similar professionals in their community. Other nonprofessional
standards, such as for drivers, may be established by applicable laws and
regulations, such as the rules of the road. Also, the standard of care may vary
based upon the relationship between the parties. For example, a higher
standard of care is applied in situations involving a compensated service than
a gratuitous favor.
B. Business judgment rule
The business judgment rule provides protection for corporate officers and
directors, but also opportunities for plaintiffs who claim that they have been
the victims of corporate misdeeds. The rule provides corporate officers and
directors with a presumption of good faith and thus an opportunity for quick
resolution of claims through summary judgment. On the other side of the coin,
though, the rule provides a personal liability avenue for plaintiffs to follow if
they can demonstrate that the activities of the corporate directors or officers
constituted fraud, bad faith, or an abuse of discretion.
C. Test of Negligence