Introduction

An obligation arises when one person acquires the right to demand a specific performance from another person. The holder of the right is called the creditor, while the person required to perform is called the debtor. The required performance may consist of transferring a right, delivering property, carrying out an act, refraining from an act, or paying compensation.

The existence of an economic interest or a personal expectation is not sufficient, by itself, to establish an obligation. There must be a legally recognized ground that produces a legal effect. This ground is known as the source of the obligation, meaning the event or legal act from which a personal right arises and by virtue of which a legal relationship is established between the creditor and the debtor.

The Civil Transactions Law, issued by Royal Decree No. (M/191) dated 29/11/1444 AH, regulates the sources of obligations within the section dedicated to obligations. These sources include contracts, unilateral legal acts, harmful acts, unjust enrichment and its related applications such as payment of an undue amount and management of another person’s affairs, as well as obligations arising directly from the law. (Official Laws and Regulations Website)

What Is Meant by Sources of Obligations?

The source of an obligation is the legal basis that causes a debt to arise in the debtor’s liability. Identifying this source is important for determining the rules governing the relationship, the conditions under which performance becomes due, the method of proving the right, the legal consequence of non-performance, and the period during which a claim may be heard.

For example, the buyer’s obligation to pay the price arises from the sale contract. The obligation of a person who wrongfully damages another person’s property arises from a harmful act. The obligation of a person who receives an amount to which they are not entitled to return it arises from payment of an undue amount. An obligation directly imposed by a specific legal provision derives from the law itself.

Although the financial outcome may appear similar under more than one source, the applicable rules vary according to the legal basis of the obligation. Compensation for breach of contract is governed by contractual liability, whereas compensation for harm caused to a person who has no contractual relationship with the responsible party is governed by the rules applicable to harmful acts.

First: Contract

Contract as a Source of Obligation

A contract is the most common source of obligations in civil and commercial transactions. It is formed through the connection of an offer and acceptance for the purpose of producing a legal effect, subject to any formality or special procedure required for certain contracts.

A contract is based on the concurrence of two or more intentions aimed at creating, modifying, transferring, or terminating a legal relationship. Once a valid contract is concluded, the agreed rights and obligations arise, and each party becomes bound to perform what they have undertaken.

In a sale contract, the seller is obliged to transfer and deliver the sold property, while the buyer is obliged to pay the price. In a lease contract, the lessor is obliged to enable the lessee to benefit from the leased property, while the lessee is obliged to pay the rent. In a construction contract, the contractor is obliged to complete the work, while the employer is obliged to pay the agreed consideration.

Scope of Obligations Arising from a Contract

Contractual obligations are not limited to terms expressly written in the contract. They also include obligations regarded as necessary consequences of the contract under the law, custom, and the nature of the transaction. Accordingly, a contract may give rise to ancillary obligations such as:

• Providing the cooperation necessary for performance.

• Supplying the required information and documents.

• Maintaining the confidentiality of information.

• Notifying the other party of facts affecting performance.

• Refraining from obstructing the performance of the obligation.

• Taking customary measures to preserve the subject matter of the contract.

A contract must be performed in accordance with its terms and in a manner consistent with good faith. A party may not rely on the literal wording of a provision in a way that defeats the lawful purpose of the contract or causes harm to the other party contrary to the honesty and trust required in contractual dealings.

Effect of Breach of a Contractual Obligation

If one of the contracting parties refuses to perform an obligation, delays its performance, or performs it partially or defectively, the other party may rely on the remedies provided by law according to the nature of the contract and the breach, including:

• Requesting specific performance.

• Suspending performance of the corresponding obligation.

• Requesting rescission of the contract.

• Claiming compensation.

• Exercising rights provided by the contract in cases of delay or breach.

Entitlement to each remedy is subject to its statutory requirements and to the valid provisions contained in the contract. These consequences confirm that a contract is not merely a record of mutual understanding; it is a direct source of obligations that may be claimed and enforced. (Official Laws and Regulations Website)

Second: Unilateral Legal Act

When Does a Unilateral Intention Create an Obligation?

As a general rule, voluntarily creating an obligation requires the concurrence of two intentions in the form of a contract. However, the Civil Transactions Law permits a person to become bound by a unilateral intention in the circumstances prescribed by statutory provisions.

A unilateral legal act means an independent expression of intention made by a person for the purpose of creating an obligation in their own liability, without the creation of that obligation depending on another person’s acceptance, provided that the conditions established by law are satisfied.

The rules governing contracts apply to unilateral legal acts to the extent compatible with their nature, except for rules that presuppose the concurrence of two corresponding intentions in order to create the obligation. (Official Laws and Regulations Website)

Promise of a Reward

A promise of a reward is the most prominent example of an obligation arising from a unilateral intention. It occurs where a person makes a public promise to grant a specified reward to anyone who performs a particular act, such as finding a lost item, providing specified information, or achieving a result announced by the promisor.

The promisor is obliged to pay the reward to the person who completes the act in accordance with the announced conditions, even if that person performed the act without knowing of the promise or without intending to obtain the reward.

If the promisor specifies a period for performing the act, the promise remains binding throughout that period. If no period is specified, the promisor may revoke the promise in the same manner in which it was announced or by announcing the revocation to the public, while preserving the rights of anyone who completed the act before the revocation was announced in accordance with the applicable legal provisions.

Importance of Properly Drafting Public Announcements

Certain commercial or professional advertisements may become a source of obligation where they contain a clear promise of a specified reward or benefit in exchange for a particular act. Therefore, the announcement should state:

• The act required to be completed.

• The conditions for entitlement to the reward.

• The amount of the reward or the method of determining it.

• The period specified for completing the act.

• The method for proving that the conditions have been satisfied.

• The method for dealing with multiple persons who complete the act.

Precise drafting helps prevent disputes over whether the announcement is merely an invitation or promotional description, or a binding promise that creates a right for whoever satisfies its conditions.

Third: Harmful Act

How Does an Obligation Arise from a Harmful Act?

An obligation to compensate arises when a person commits a wrongful act that causes harm to another. The Civil Transactions Law provides that any person whose wrongful act causes harm to another is obliged to compensate the injured party.

This source differs from a contract because the obligation does not arise from a prior agreement between the responsible person and the injured party. It arises when the harmful event occurs and satisfies the statutory requirements. (Official Laws and Regulations Website)

Elements of Liability for a Harmful Act

Liability for a harmful act is based on three interconnected elements:

1. Fault

Fault is conduct that departs from a statutory duty or from the degree of care expected from an ordinary person in the same circumstances. It may consist of a positive act, such as damaging another person’s property, or an omission to take an action that should have been taken.

Fault may be intentional, as in deliberate destruction, or unintentional, as in negligence, lack of precaution, or failure to take the necessary measures.

2. Damage

The fault must cause harm to the injured party’s right or legitimate interest. The damage may be material, such as destruction of property, incurring expenses, or loss of income. It may also be moral damage where the conditions for compensation are satisfied.

Compensation includes the loss suffered by the injured party and the profit they were deprived of, provided that this is a natural consequence of the harmful act. Consideration is also given to any damage that the injured party could have avoided by exercising the reasonable effort required by the circumstances.

3. Causal Relationship

There must be a causal link between the fault and the damage, so that the damage results from the act attributed to the responsible person. If it is established that the damage resulted from another independent cause, force majeure, or solely from the injured party’s own fault, the existence or extent of liability may be affected depending on the circumstances.

Compensation for Damage

Compensation is assessed in an amount sufficient to fully repair the damage by restoring the injured party to the position they occupied, or would have occupied, had the damage not occurred.

Compensation may be monetary or in kind where the damage can be removed and the previous position restored. The court considers the nature and extent of the damage, its direct consequences, the surrounding circumstances, and the degree to which the injured party contributed to its occurrence or aggravation.

Compensation for a harmful act includes moral damage in accordance with the prescribed rules. This includes physical or psychological harm resulting from interference with a person’s body, freedom, honour, reputation, or social standing.

Fourth: Beneficial Act and Unjust Enrichment

Meaning of a Beneficial Act

The Civil Transactions Law regulates situations in which one person obtains a benefit at another person’s expense without a lawful basis justifying the retention of that benefit. These situations fall within the rules of unjust enrichment, payment of an undue amount, and management of another person’s affairs.

This source is intended to prevent financial imbalance between persons. Anyone who becomes enriched without a lawful basis at another’s expense is obliged, within the limits of the enrichment obtained, to compensate the person who suffered the corresponding loss.

The creation of this obligation does not require a contract between the parties, nor does it require that the enriched person committed a fault. The obligation to restore arises from the receipt or transfer of a benefit without a legal basis justifying its retention.

Unjust Enrichment

Unjust enrichment exists when the following elements are present:

• An increase or benefit in one person’s assets.

• A loss or impoverishment in another person’s assets.

• A connection between the enrichment and the impoverishment.

• The absence of a contract, legal provision, or lawful basis justifying the enrichment.

The beneficiary’s obligation is limited to the amount of the enrichment obtained and the loss suffered by the impoverished party. If the loss exceeds the amount of enrichment, the obligation is limited to the enrichment obtained. If the enrichment exceeds the loss, compensation is limited to the amount of the loss.

Payment of an Undue Amount

Payment of an undue amount occurs when a person transfers money or another benefit believing that an obligation exists, and it later becomes clear that the debt did not exist or that payment was not due.

Examples include:

• Transferring money to another person’s account by mistake.

• Paying an invoice that has already been settled.

• Collecting an amount exceeding the amount due.

• Paying a debt that had already been extinguished before payment.

• Delivering property to a person other than its owner because of an error in the information.

A person who receives an undue amount is obliged to return it according to the circumstances and depending on whether they acted in good faith or knew that they were not entitled to it. In the circumstances prescribed by law, restitution may extend to fruits or benefits derived from the property.

Management of Another Person’s Affairs

Management of another person’s affairs occurs when a person intentionally undertakes an urgent matter on behalf of another person without being obliged or authorized to do so.

Examples include intervening to repair a serious leak in a neighbour’s property during their absence in order to protect it from damage, or taking urgent measures to preserve another person’s property when it is not possible to contact the owner in time.

The manager is obliged to continue the work until the beneficiary can take over personally, notify the beneficiary of the intervention whenever possible, exercise the care of an ordinary person, provide an account of the actions taken, and return anything received as a result of the management.

In return, where the statutory conditions are satisfied, the beneficiary is obliged to perform the undertakings entered into by the manager on the beneficiary’s behalf, compensate the manager for obligations incurred, reimburse necessary and beneficial expenses justified by the circumstances, and compensate the manager for damage suffered as a result of the work. The manager is not entitled to remuneration unless the work falls within the scope of their profession.

Limitation Period for Claims Relating to Unjust Enrichment, Payment of an Undue Amount, and Management of Another Person’s Affairs

The law establishes a special period for these claims. A claim arising from unjust enrichment, payment of an undue amount, or management of another person’s affairs may not be heard after three years from the date on which the creditor became aware of the right. In all cases, the claim may not be heard after ten years from the date on which the right arose. (Official Laws and Regulations Website)

Fifth: Law

Law as a Direct Source of Obligation

An obligation may arise directly from a statutory provision without being based on a contract, unilateral intention, harmful act, or unjust enrichment. In such a case, the provision itself creates the right and identifies the debtor, the creditor, and the content of the required performance.

The Civil Transactions Law provides that obligations arising directly and exclusively from the law are governed by the statutory provisions that created them. This means that the scope, conditions, effects, and methods of enforcing the obligation are determined by reference to the specific provision establishing it. (Official Laws and Regulations Website)

Examples of Obligations Arising from Law

Statutory obligations appear in various areas, including:

• Obligations arising from certain ownership and neighbour relations.

• Duties of a guardian, trustee, or custodian in managing the property of a person under their care.

• Obligations established to protect certain groups or interests.

• Duties of restitution or delivery imposed by a specific provision.

• Maintenance, repair, or preservation obligations where prescribed by law.

• Obligations imposed by special laws on the owners of particular businesses or professions.

These obligations differ from contractual obligations because the person’s intention is not the basis of their creation, even if entry into the relationship or acquisition of a particular legal status occurred voluntarily. Once the event to which the law attaches the legal consequence occurs, the obligation arises in accordance with the applicable provision.

Difference between the Sources of Obligations

Identifying the correct source helps determine the applicable legal rules:

• Contract: The obligation arises from the concurrence of the parties’ intentions.

• Unilateral intention: The obligation arises from the intention of one person in the circumstances prescribed by law.

• Harmful act: The obligation to compensate arises from a fault that causes harm to another person.

• Unjust enrichment: The obligation arises to restore a benefit or compensate for a loss resulting without a lawful basis.

• Law: The obligation arises directly from a statutory provision defining its content and conditions.

Several sources may appear to relate to a single event. However, a claim cannot be based merely on whichever legal characterization is most favourable to the creditor. The source that corresponds to the true nature of the relationship must be identified.

If the damage results from failure to perform an obligation stipulated in a contract, the liability is generally contractual. If the damage occurs independently of the contractual obligation or affects a third party, liability for a harmful act may arise where its requirements are satisfied.

Importance of Identifying the Source of an Obligation

Correctly characterizing the source of an obligation is an essential step when preparing claims or defending disputes because it affects several matters, including:

• Determining the elements of the claim that must be proved.

• Identifying the party obliged to perform.

• Determining the scope of compensation.

• Determining the effect of formal notice or the absence of notice.

• Identifying the available enforcement remedies.

• Determining the conditions for rescission or restitution.

• Identifying the statutory periods during which a claim may be heard.

• Assessing the validity of an agreement excluding or limiting liability.

• Determining the competent court and the applicable special law, where relevant.

An incorrect characterization of the source may result in basing the claim on rules that do not apply to the event, omitting a necessary element, or seeking a remedy that the law does not provide for that type of obligation.

Frequently Asked Questions about Sources of Obligations

Is Contract the Only Source of an Obligation?

A contract is the most common source, but it is not the only one. An obligation may arise from unilateral intention, a harmful act, unjust enrichment, or directly from the law.

Does a Unilateral Intention Create an Obligation in Every Case?

A unilateral intention creates an obligation only in the circumstances prescribed by statutory provisions. A public promise of a specified reward is one of its most prominent applications.

Is a Contract Required in Order to Claim Compensation?

Compensation may be claimed without a contract where a person wrongfully causes harm to another and the elements of liability for a harmful act are satisfied.

What Is the Difference between a Harmful Act and Unjust Enrichment?

A harmful act is based on a fault that causes damage to another person. Unjust enrichment is based on one person obtaining a benefit at another person’s expense without a lawful basis, even where the beneficiary committed no fault.

Does Every Intervention in Another Person’s Affairs Constitute Management of Another Person’s Affairs?

Management of another person’s affairs requires that a person intentionally undertake an urgent matter on behalf of another without being obliged to do so. The characterization depends on the nature of the intervention, the circumstances in which it occurred, and the extent to which it served the beneficiary’s interests.

Can an Obligation Arise Directly from a Statutory Provision?

An obligation arises directly from the law where a statutory provision links the occurrence of a particular event to a specific required performance. The rules contained in the provision that created the obligation apply to it.

Conclusion

The sources of obligations determine the legal basis of personal rights under the Civil Transactions Law. An obligation may arise from the parties’ agreement through a contract, from a unilateral legal act in the circumstances prescribed by law, from a harmful act requiring compensation, from enrichment obtained without a lawful basis, or directly from a statutory provision.

Identifying the source has practical importance when interpreting the relationship, proving the right, determining the obligations, selecting the appropriate remedy, assessing compensation, and identifying the applicable limitation periods. The validity of a claim does not depend solely on the existence of damage or debt; it also requires identifying the legal basis that created the obligation and the consequences arising from it.