CE LAWS PRELIMS TO FINALS PDF

Origin, Nature and Development of Law Engr. Lito I. Mauro 1. Law – any rule of action or any system of uniformity. – in general, it determines not only the activities of men as rational beings but also the movements or motions of all objects of creation, whe...

Origin, Nature and Development of Law Engr. Lito I. Mauro 1. Law – any rule of action or any system of uniformity. – in general, it determines not only the activities of men as rational beings but also the movements or motions of all objects of creation, whether animate or inanimate. 2. General divisions of law a. Law which is promulgated and enforced by the state. b. Law which is not promulgated and enforced by the state. The first refers to the state law while the second includes: Divine law – law of religion and faith which concerns itself with the concept of sin (as contrasted with crime) and salvation. Natural law – the divine inspiration in man of the sense of justice, fairness, righteousness, not by divine revelation or formal promulgation, but by internal dictates of reason alone.  Moral law – the totality of the norms of good and right conduct growing out of the collective sense of right and wrong of every community. Physical law – In the operation or course of nature, there are uniformities of actions and orders of sequence which are the physical phenomena that we sense and feel. State law – law that is promulgated and enforced by the state. This law is also called positive law, municipal law, and civil law or imperative law. 3. Characteristics of law a. It is a rule of conduct. b. It is obligatory. c. It is promulgated by legitimate authority. d. It is common observance and benefit. 4. What would life be without law? Society comes into existence because its members could not live without it. The need for internal order is as constant as the need for external defense. No society can be stable in which either of these requirements fails to be provided for. 5. What does law do? Law secures justice, resolves social conflict, orders society, protects interests, controls social relations. Life without basic laws against theft, violence, and destruction would be solitary, nasty, brutish and short. Life without other laws such as those regulating traffic, sanitation, employment, business, redress of harm or of broken agreements, etc. – would be less orderly, less healthful, less wholesome, etc. No society can last and continue without means of social control, without rules of social order binding on its members. 6. Sources of law a. Constitution – the written instrument by which the fundamental powers of the government are established, limited and defined, and by which these powers are distributed among the several departments for their safe and useful exercise for the benefit of the people. b. Legislation – It consists in the declaration of legal rules by a competent authority. It is the preponderant (having superior power) source of law in the Philippines. c. Administrative or executive orders, regulations, and rulings – They are those issued by administrative officials under legislative authority. Administrative rules and regulations are intended to clarify or explain the law and carry into effects its general provisions. Administrative acts are valid only when they are not contrary to the laws and Constitution. d. Custom – It consists of those habits and practices which through long and uninterrupted usage have become acknowledged and approved by society as binding rules of conduct. It has the force of the law when recognized and enforced by the state. e. Judicial decisions or jurisprudence – The decisions of the courts, particularly the Supreme Court, applying or interpreting the laws or the Constitution form part of the legal system of the Philippines. f. Other sources – Others are principles of justice and equity, decisions of foreign tribunals, opinions of text writers, and religion. 7. Organization of courts a. Regular courts – The Philippine judicial system consists of a hierarchy of courts resembling a pyramid with the Supreme Court at the apex. The other courts are: Court of Appeals, Regional Trial Courts sitting in the different provinces and cities, and Metropolitan Trial Courts in Metropolitan areas established by law; Municipal Trial Courts in cities not forming part of a metropolitan area, and Municipal Circuit Trial Courts in areas defined as municipal circuits. The Supreme Court, the Court of Appeals, and the Regional Trial Courts are considered courts of general or superior jurisdiction. b. Special courts – There is a special anti-graft court, the Sandiganbayan. It forms part of the judicial hierarchy together with the Court of Tax Appeals, a special tax court created by law. c. Quasi-judicial agencies – Administrative bodies under the executive branch performing quasi-judicial functions, like the NLRC, the SEC, LTFRB, Insurance Commission, etc., and the independent Constitutional Commissions (CSC, Comelec, and CoA) do not form part of the integrated judicial system. 8. Classifications of law a. as to its purpose Substantive law or that portion of the body of law creating and defining rights and duties which may be either public or private in character. Ex.: law on obligations and contracts  Adjective law or that portion of the body of law prescribing the manner or procedure by which rights may be enforced or their violations redressed. Sometimes this is called remedial law or procedural law. Ex.: The provision of law which says that actions for the recovery of real property shall be filed with the RTC of the region where the property or any part therefore lies.  b. as to its subject matter Public law or the body of legal rules which regulates the rights and duties arising from the relationship of the state to the people. Ex: Criminal law – the law which defines crimes and provides for their punishment. International law or that law which governs the relations among nations or states. Constitutional law or that which governs the relations between the state and its citizens; it establishes the fundamental powers of the government. Administrative law or that which governs the methods by which the functions of administrative authorities are to be performed. Criminal procedure or that branch of private law which governs the methods of trial and punishment in criminal cases.  Private law or the body of rules which regulates the relations of individuals with one another for purely private ends. The law on obligations and contracts comes under this heading because it deals with the rights and obligations of the contracting parties only. Included in private law are civil law, commercial law or mercantile law and civil procedure. Civil procedure – that branch of private law which provides for the means by which private rights may be enforced. Law on obligations and contracts – the body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and the particular contracts. “Ignorance of law excuses no one from compliance therewith.” “ Everyone, therefore, is conclusively presumed to know the law.”  Obligations Engr. Lito I. Mauro Obligation An obligation is a juridical necessity to give, to do or not to do. The term obligation is derived from the Latin word obligatio which means tying or binding. It is a tie or bond recognized by law 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. Obligor – one who has the duty of giving, doing or not doing. Obligee – one who has the right to the performance of the obligation. Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be called upon by the aggrieved party to enforce its fulfillment or, in default thereof, the economic value that it represents. Civil obligations – obligations which give to the creditor or obligee a right under the law to enforce their performance in courts of justice. Natural obligations – do not grant a right of action to enforce their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof. Four essential requisites of an obligation a. A passive subject (called debtor or obligor) – the person who is bound to the fulfillment of the obligation; he who has the duty. b. An active subject (called creditor or obligee) – the person who is entitled to demand the fulfillment of the obligation; he who has a right. c. Object or prestation (subject matter of the obligation) – the conduct required to be observed by the debtor. It may consist in giving, doing, or not doing. Without the prestation, there is nothing to perform. d. A juridical or legal tie (also called efficient cause) that which binds or connects the parties to the obligation. Obligation, right and wrong distinguished a. Obligation is the act or performance which the law will enforce.  b. Right is the power which a person has under the law, to demand from another any prestation. c. A wrong (cause of action), is an act or omission of one party in violation of the legal right or rights (i.e., recognized by law) of another. In law, the term injury is also used to refer to the wrongful violation of the legal right of another. The essential elements of a legal wrong or injury are: a. a legal right in favor of a person (creditor / plaintiff) b. correlative legal obligation on the part of another (debtor / defendant) c. an act or omission by the latter in violation of said right with resulting damage to the former. Kinds of obligation according to the subject matter a. Real obligation (obligation to give) is that in which the subject matter is a thing which the obligor must deliver to the obligee. b. Personal obligation (obligation to do or not to do) is that in which the subject matter is an act to be done or not to be done. - Positive personal obligation or obligation to do or to render service. -Negative personal obligation is obligation not to do (which naturally includes obligations “not to give”). Sources of obligations a. Law – when they are imposed by law itself. b. Contracts – when they arise from the stipulation of the parties. c. Quasi-contracts – when they arise from lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. d. Crimes or acts or omissions punished by law – when they arise from civil liability which is the consequence of a criminal offense. e. Quasi-delicts or torts – when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties. Compliance in good faith – compliance or performance in accordance with the stipulations or terms of the contract or agreement. Delay – as used in the law: a. Ordinary delay is merely the failure to perform an obligation on time. b. Legal delay or default is the failure to perform an obligation on time which failure constitutes a breach of the obligation. Kinds of delay or default a. Mora solvendi or the delay on the part of the debtor to fulfill his obligation (to give or to do). b. Mora accipiendi or the delay on the part of the creditor to accept the performance of the obligation. c. Compensatio morae or the delay of the obligors in reciprocal obligations (like in sale) i.e., the delay of the obligor cancels the delay of the obligee, and vice versa. Requisites of delay by the debtor Conditions present before mora solvendi can exist: a. failure of the debtor to perform his obligation on the date agreed upon b. demand (not reminder or notice) made by the creditor upon the debtor to comply with his obligation which demand may be either judicial (when a complaint is filed in court) or extrajudicial (made outside of court) c. failure of the debtor to comply with such demand Effects of mora solvendi a. The debtor is guilty of breach or violation of the obligation. b. He is liable to the creditor for interest (obligations to pay money) or damages (in other obligations) c. He is liable even for a fortuitous event (happening by chance) when the obligation is to deliver a determinate thing. Effects of mora accipiendi a. The creditor is guilty of breach of obligation. b. He is liable for damages suffered, if any, by the debtor. c. He bears the risk of loss of the thing due. d. Where the obligation is to pay money, the debtor is not liable for interest from the time of creditor’s delay. e. The debtor may release himself from the obligation by the consignation or deposit in court of the thing or sum due. In compensatio morae, the delay of the obligor cancels the delay of the obligee and vice versa. The net result is that there is no default or delay on the part of both parties. Grounds for liability Four grounds for liability which may entitle the injured party to damages. a. Fraud (deceit or dolo) – is the deliberate or intentional evasion of the normal fulfillment of an obligation. It implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in good faith. It is synonymous to bad faith. b. Negligence (fault or culpa) – It is any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation. c. Delay d. Contravention of the terms of the obligation – This is the violation of the terms and conditions stipulated in the obligation. The contravention must not be due to a fortuitous event or force majeure. Fraud and negligence distinguished a. In fraud, there is deliberate intention to cause damage or injury, while in negligence, there is no such intention. b. Waiver of the liability for future fraud is void while such waiver may, in a certain sense, be allowed in negligence. c. Fraud must be clearly proved, while negligence is presumed from the violation of a contractual obligation. d. Liability for fraud cannot be mitigated or reduced by the courts, while liability for negligence may be reduced according to the circumstances. Factors to be considered in negligence a. Nature of the obligation Ex.: Smoking while carrying inflammable materials b. Circumstances of the person Ex.: A guard sleeping while on duty c. Circumstances of time Ex.: Driving a car at night without headlights d. Circumstances of the place Ex.: Driving 80kph in Taft Ave. Fortuitous event – any event which cannot be foreseen, or which, though foreseen, is inevitable. Fortuitous event distinguished from force majeure a. Acts of man – Strictly speaking, fortuitous event is an event independent of the will of the obligor but not of other human wills. Ex.: war, fire, robbery, murder, insurrection b. Acts of God – They refer to what is called force majeure or those events which are totally independent of the will of every human being. Ex.: earthquake, flood, lightning Kinds of fortuitous events a. Ordinary fortuitous events – those events which are common and which the contracting parties could reasonably foresee. Ex.: rain b. Extra- ordinary fortuitous events – events which are uncommon and which the contracting parties could not have reasonably foreseen. Ex.: earthquake, fire, war, pestilence Requisites of a fortuitous event a. The event must be independent of the human will or at least of the debtor’s will; b. The event could not be foreseen, or if foreseen, is inevitable; c. The event must be of such a character as to render it impossible for the debtor to comply with his obligation in a normal manner; d. The debtor must be free from any participation in, or the aggravation of, the injury of the creditor, that is, there is no concurrent negligence on his part. A person is not, as a rule, responsible for loss or damage caused to another resulting from fortuitous events. In other words, his obligation is extinguished. Condition Condition – a term or requirement stated in a contract, which must be met for the other party to have the duty to fulfill his/her obligations. – a future and uncertain event upon the happening of which certain rights or obligations will be either enlarged, created, or destroyed. A condition may be either express or implied. a. An express condition is clearly stated and embodied in specific, definite terms in a contract, lease, or deed. Ex.: The provision in an installment credit contract that, if the balance is paid before a certain date, the debtor's interest will be reduced. b. An implied condition is presumed by law based upon the nature of a particular transaction and what would be reasonable to do if a particular event occurred. Ex.: If a man leases a hall for a wedding on a certain date, her ability to use the hall is based on its implied continued existence. If the hall burns down before that date, use of the hall is impossible due to fire; therefore, the law would imply a condition excusing the lessor from liability. In the law of contracts, as well as estates and conveyancing, conditions subsequent and precedent may exist. a. A condition subsequent means that a right may be taken away from someone upon the occurrence of a specified event. b. A condition precedent must occur before a right accrues. Ex.: A woman may convey her house to her son based on the condition that the son marry by the age of 25. If the son fails to marry by that age, he has lost his right to the house. Similarly, in contract law, if an agreement is signed by one party and sent to a second party with the intention that it will not become enforceable until the second party signs it, the second party's signature would be a condition precedent to its effectiveness. Ex.: An owner of a property may convey land to a town on the condition that it be used only for sports purposes. If the land conveyed is used to build a shopping mall, then ownership would revert to the original owner. A condition subsequent may also affect a transaction involving a gift. An engagement ring is regarded as an inter vivos (between living persons) gift to which no conditions are attached. In some states, its ownership is considered to be conditioned upon the subsequent marriage of the couple involved; therefore, if a woman does not marry the man who gave her the engagement ring, ownership reverts to him and she must return it to him. Concurrent conditions are conditions in the law of contracts that each party to the contract must simultaneously perform. Condition, contracts, wills. A condition is a clause in a contract or agreement which has for its object to suspend, to rescind, or to modify the principal obligation; or in case of a will, to suspend, revoke, or modify the devise or bequest (legacy). Ex.: It is in fact by itself, in many cases, an agreement; and a sufficient foundation as an agreement in writing, for a bill in equity, praying for a specific performance. In pleading, according to the course of the common law, the bond and its condition are to some intents and purposes, regarded as distinct things. – any portion or agreement which regulates what the parties have a mind should be done, if a case they foresee should come to pass. Ex.: Conditions sometimes suspend the obligation; as, when it is to have effect until they are fulfilled; as, if I bind myself to pay you ₱10,000.00 on condition that my parents will send me money; the contract is suspended until the money is sent. Ex.: The condition sometimes rescinds (voids) the contract; as, when I sell you my horse, on condition that he shall be alive on the first day of January, and he dies before that time. Ex.: A condition may modify the contract; as, if I sell you 200 sacks of rice, upon condition that my crop shall produce that much, and it produces only 150 sacks. Events foreseen by conditions are of three kinds a. Some depend on the acts of the persons who deal together Ex.: If the agreement should provide that a partner should not join another partnership. b. Others are independent of the will of the parties Ex.: If I sell you 1000 bushels of corn, on condition that my crop shall not be destroyed by a fortuitous event, or act of God. c. Some depend in part on the contracting parties and partly on the act of God Ex.: If it be provided that such merchandise shall arrive by a certain day. Conditions are of various kinds a. as to their form, they are expressed or implied. This division is of feudal origin. b. as to their object, they are lawful or unlawful c. as to the time when they are to take effect, they are precedent or subsequent d. as to their nature, they are possible or impossible e. as to their operation, they are positive or negative f. as to their divisibility, they are copulative or disjunctive g. as to their agreement with the contract, they are consistent or repugnant h. as to their effect, they are resolutory or suspensive. An expressed condition is one created by expressed words. Ex.: A condition in a lease that if the tenant shall not pay the rent at the day, the lessor may reenter. An implied condition is one created by law, and not by express words. Ex.: At common law, the tenant for life holds upon the implied condition not to commit waste. A lawful or legal condition is one made in consonance with the law. This must be understood of the law as existing at the time of making the condition, for no change of the law can change the force of the condition. Ex.: When the condition was imposed, 25 was the age of majority in the state; it was afterwards changed to 21. Under these circumstances the condition was held to be binding. An unlawful or illegal condition is one forbidden by law. Unlawful conditions have for their object: a. to do something malum in se (wrong or evil in itself), or malum prohibitum (unlawful act ) b. to omit the performance of some duty required by law c. to encourage such act or omission When the law prohibits, in express terms, the transaction in respect to which the condition is made, and declares it void, such condition is then void; but when it is prohibited, without being declared void, although unlawful, it is not void. Conditions in restraint of marriage are odious, (hatred) and are therefore held to the utmost rigor and strictness. They are contrary to sound policy, and by the Roman law were all void. A condition precedent is one which must be performed before the estate will vest, or before the obligation is to be performed. Whether a condition shall be considered as precedent or subsequent, depends not on the form or arrangement of the words, but on the manifest intention of the parties, on the fair construction of the contract. A subsequent condition is one which enlarges or defeats an estate or right, already created. Ex.: A conveyance in fee, reserving a life estate in a part of the land, and made upon condition that the grantee shall pay certain sums of money at diverse times to several persons, passes the fee upon condition subsequent. Sometimes it becomes of great importance to ascertain whether the condition is precedent or subsequent. When a precedent condition becomes impossible by the act of God, no estate or right vests; but if the condition is subsequent, the estate or right becomes absolute. A possible condition is one which may be performed, and there is nothing in the laws of nature to prevent its performance. An impossible condition is one which cannot be accomplished according to the laws of nature. Ex.: To fly to the moon and back in one day. Such a condition is void. A positive condition requires that the event contemplated shall happen. Ex.: If I marry. A negative condition requires that the event contemplated shall not happen as if I do not marry. A copulative condition is one of several distinct-matters, the whole of which are made precedent to the vesting of an estate or right. Ex.: In this case the entire condition must be performed, or the estate or right can never arise or take place. If one becomes impossible by the act of God, the whole will, in general, be excused. This rule, however, is not without exception. A consistent condition is one which agrees with other parts of the contract. A disjunctive condition is one which gives the party to be affected by it, the right to perform one or the other of two alternatives. It gives to the party the right to perform the one or the other. A repugnant condition is one which is contrary to the contract. Ex.: If I grant to you a house and lot in fee, upon condition that you shall not alien (to transfer, as title or property), the condition is repugnant and void, as being inconsistent with the estate granted. A resolutory condition in the civil law is one which has for its object, when accomplished the revocation of the principal obligation. This condition does not suspend either the existence or the execution of the obligation, it merely obliges the creditor to return what he has received. A suspensive condition is one which suspends the fulfillment of the obligation until it has been performed. Ex.: If a man binds himself to pay ₱100,000, upon condition that 50 sacks of rice will be delivered to him. The obligation, in this case, is suspended until the delivery of the rice, when the condition having been performed, the obligation becomes absolute, and it is no longer conditional. A suspensive condition is in fact a condition precedent. Conditions are further divided into potestative, casual and mixed. a. A potestative condition is that which is in the power of the person in whose favor it is contracted. Ex.: If I engage to give my neighbor a sum of money, in case he cuts down a tree which obstructs my prospect. b. A casual condition is one which depends altogether upon chance, and not in the power of the creditor. Ex.: if I have children; if I have no children. c. A mixed condition is one which depends on the will of the creditor and of a third person. Ex.: if you marry my cousin. Condition, persons It is a situation in civil society which creates certain relations between the individual, to whom it is applied, and one or more others, from which mutual rights and obligations arise. Thus the situation arising from marriage gives rise to the conditions of husband and wife that of paternity to the conditions of father and child. In contracts every one is presumed to know the condition of the person with whom he deals. A man making a contract with an infant cannot recover against him for a breach of the contract, on the ground that he was not aware of his condition.  Pure and Conditional Obligations Pure obligation – one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. Conditional obligation – one whose consequences are subject in one way or another to the fulfillment of a condition. Characteristics of a condition a. Future and uncertain – In order to constitute an event as a condition, it is not enough that it be future, it must also be uncertain. b. Past but unknown – A condition may refer to a past event unknown to the parties. Principal kinds of condition a. Suspensive condition (condition precedent or condition antecedent) or one the fulfillment of which will give rise to an obligation. Ex.: I will sell you the land if it is adjudicated (to study and settle a dispute or conflict) to me in the division of my deceased father’s estate. b. Resolutory condition (condition subsequent) or one the fulfillment of which will extinguish an obligation already existing. Ex.: B binds himself to give C ₱1,000 monthly until C graduates from college. Distinction between suspensive and resolutory conditions If the suspensive condition is fulfilled, the obligation arises, while it is resolutory condition that is fulfilled, the obligation is extinguished. When obligation is demandable at once a. when it is pure b. when it is subject to a resolutory condition c. when it is subject to a resolutory period Where duration of period depends upon the will of debtor Period – a future and certain event upon the arrival of which the obligation subject to it either arises or it is extinguished. A. The debtor promises to pay when his means permit him to do so. B. Other cases a. little by little b. as soon as possible c. from time to time d. at any time I have money e. in partial payments f. when I am in the position to pay Classification of conditions A. as to effect a. Suspensive – the happening of which gives rise to the obligation. b. Resolutory – the happening of which extinguishes the obligation. B. as to form a.Expressed – the condition is clearly stated b. Implied – the condition is merely inferred. C. as to possibility a. Possible – the condition is capable of fulfillment, legally and physically. b. Impossible – the condition is not capable of fulfillment, legally and physically. D. as to cause or origin a. Potestative – the condition depends upon the will of one of the contracting parties. b. Casual – the condition depends upon chance or upon the will of a third person. c. Mixed – the condition depends partly upon chance and partly upon the will of a third person. E. as to made a. Positive – the condition consists in the performance of an act. b. Negative – the condition consists in the omission of an act. F. as to numbers a. Conjunctive – there are several conditions and all must be fulfilled. b. Disjunctive – there are several conditions and only one or some of them must be fulfilled. G. as to divisibility a. Divisible – the condition is susceptible of partial performance. b. Indivisible – the condition is not susceptible of partial performance. Potestative condition –a condition suspensive in nature and which depends upon the sole will of one of the contracting parties. Conditional obligation void – where the potestative condition depends solely upon the will of the debtor. Ex.: I will pay you if I want. I will pay you after I receive a loan from the bank. I will pay you after I recover what X owes me. Only the condition void – If the obligation is pre-existing one, only the condition is void. Ex.: X borrowed 1M pesos from Y payable within 1 year. Subsequently, X promised to pay Y “after X sells his 1hec lot” to which Y agreed. In this case, only the condition is void but not the pre-existing obligation of X to Y. If the condition depends exclusively upon the will of the creditor, the obligation is valid. Ex.: I will pay you my indebtedness upon your demand. Casual condition – If the suspensive condition depends upon chance or upon the will of the third person, the obligation subject to it is valid. Ex.: Where X, building contractor, obliges himself in favor of Y, owner, to repair at X’s expense any damage that may be caused to the building by any earthquake occurring within 10 years from the date of the completion of its construction. Mixed condition – The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person. Ex.: Where X, building contractor, obliges himself in favor of Y, owners, to repair at X’s expense, any damage to the building taking place after an earthquake if found by a panel of arbitrators that construction defects contributed in any way to the damage. Kinds of impossible conditions a. Physically impossible conditions – when they, in nature of things, cannot exist or cannot be done. Ex.: I will pay you ₱10t if it will not rain for one year in the Philippines. I will pay you ₱10t if you can carry 20 sacks of rice in your shoulder. b. Legally impossible conditions – when they are contrary to law, morals, good customs, public order, or public policy. Ex.: X will give Y ₱10t if Y – will kill Z (against the law) will be the common-law wife of X (against morals) Ex.: X will give Y ₱10t if Y – will slap his father (against good customs) will publicly advocate the overthrow of the government (against public order) will not appear as a witness against X in a criminal case (against public policy) Kinds of loss a. Physical loss – when a thing perishes as when a house is burned and reduced to ashes. b. Legal loss – when a thing goes out of commerce or when a thing heretofore legal becomes illegal. Ex.: During the Japanese occupation, American dollars had become impossible. c. Civil loss – when a thing disappears in such a way that its existence is unknown. Ex.: a particular dog has been missing for sometime – or if even known, it cannot be recovered, whether as a matter of fact Ex.: a ring is dropped from a ship at sea Kinds of obligation according to the person obliged A. Unilateral – when only one party is obliged to comply with a prestation. Ex.: Donation B. Bilateral – when both parties are mutually bound to each other. Both parties are debtors and creditors. a. Reciprocal obligations – those which arise from the same cause and in which each party is a debtor and creditor of the other, such that the performance of one is designed to be the equivalent and the condition for the performance of the other. Ex.: The seller is the creditor as to the price and debtor as to the thing, while the buyer is the creditor as to the thing and debtor as to the price. b. Non-reciprocal obligations – those which do not impose simultaneous and correlative performance on both parties. Ex.: X borrowed from Y ₱10t. Y, on the other hand, borrowed X’s car. Remedies in Reciprocal Obligations In case one of the obligors does not comply with what is incumbent upon him, the aggrieved party may choose between two remedies: a. Action for specific performance (fulfillment) of the obligation with damages b. Action for rescission (annulment) of the obligation with damages Obligations with a Period Obligation with a period – one whose consequences are subjected in one way or another to the expiration of said period or term. Period and condition distinguished a. As to fulfillment – A period is a certain event which must happen sooner or later at a date known beforehand, or at a time which cannot be determined, while a condition is an uncertain event. b. As to time – A period refers only to the future, while a condition may refer also to a past event unknown to the parties. c. As to the effect, when left to debtor’s will A period which depends upon the will of the debtor empowers the court to fix the duration thereof, while a condition which depends upon the sole will of the debtor invalidates the obligation. d. As to retroactivity of effects – Unless there is an agreement to the contrary, the arrival of a period does not have any retroactive effect, while the happening of a condition has retroactive effect. Like a condition, a period must be possible. If the period is impossible, the obligation is void. Kinds of period or term A. According to effect a. Suspensive period The obligation begins only from a day certain upon the arrival of the period. Ex.: I will pay you 30 days from today. I will support you from the time you finished your studies. I will pay you when my means permit me to do so. b. Resolutory period The obligation is valid up to a day certain and terminates upon the arrival of the period. Ex.: I will give you P1,000.00/m until the end of the year. I will support you until you find a job. B. According to source a. Legal period – when it is provided for by laws. b. Conventional or voluntary period – when it is agreed to by the parties. c. Judicial period – when it is fixed by the court. C. According to definiteness a. Definite period – when it is fixed or it is known when it will come. b. Indefinite period – when it is not fixed or it is not known when it will come. Computation of term or period In computing a period, the first day shall be excluded, and the last day included. Presumption as to benefit of period In an obligation subject to a period fixed by the parties, the period is presumed to have been established for the benefit of both the creditor and the debtor. Before the expiration of the period, the debtor may not fulfill the obligation and neither may the creditor demand its fulfillment without the consent of the other especially if the latter would be prejudiced or inconvenienced thereby. Ex.: On Jan. 1, A borrowed from B ₱10,000 payable on June 30 at 10% interest. A cannot pay before June 30 without the consent of B. Neither can B compel A to pay before the expiration of the term. Prestation – A payment of money; a toll or duty; also, the rendering of a service. Money is divisible. Obligations with a Penal Clause Penal clause – an accessory undertaking attached to an obligation to assume greater liability in case of breach, i.e., the obligation is not fulfilled, or is partly or irregularly complied with. Purpose of penal clause – to ensure their performance by creating an effective deterrent against breach to substitute a penalty for the indemnity for damages and the payment of interests in case of non-compliance; or to punish the debtor for the non- fulfillment or violation of his obligation Kinds of penal clause A. as to origin a. Legal penal clause – when it is provided for by law. b. Conventional penal clause – when it is provided for by stipulation of the parties. B. as to its purpose a. Compensatory penal clause – when the penalty takes the place of damages. b. Punitive penal damages – when the penalty is imposed merely as punishment for breach. C. as to its demandability or effect a. Subsidiary or alternative penal clause – when only the penalty can be enforced. b. Joint or cumulative penal clause – when both the principal obligation and the penal clause can be enforced. Penalty substitutes for damages and interests. In an obligation with a penal clause, the penalty takes the place of the indemnity for damages and the payment of interests in case of non-compliance. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be enforced. When creditor may recover damages a. when so stipulated by the parties b. when the obligor refuses to pay the penalty c. when the obligor is guilty of fraud in the fulfillment of the obligation Ex.: X promised to construct a house for Y. The contract carried a penal clause that in case of non-compliance, X would have to pay a penalty of ₱50,000. X did not construct the house and, as a consequence, Y suffered damage in the amount of ₱40,000. In this case, the penalty of ₱50,000 shall be paid. Y cannot recover more than ₱50,000, the penalty stipulated, even if he proves that the damages suffered by him is ₱60,000. When penalty may be enforced The penalty may be enforced only when it is demandable in accordance with the provisions of the Civil Code. The penalty, as a stipulation in a contract, is demandable only if there is a breach of the obligation and it is not contrary to law, morals, good customs, public order, or public policy. If the obligation cannot be fulfilled due to a fortuitous event, the penalty is not demandable. Penalty not substitute for performance. The debtor cannot just pay the penalty instead of performing the obligation. The object of the penalty is to secure compliance with the obligation. Ex.: A is required to deliver to B certain products; otherwise, he shall pay a penalty in the amount of ₱10,000. Penal clause presumed subsidiary The creditor cannot demand the fulfillment of the obligation and the satisfaction of the penalty at the same time. The primary purpose of penalty is to urge the debtor to the performance of the main obligation. Penalty demandable without proof of actual damages In an obligation with a penal clause, all that the creditor has to prove, to enforce the penalty, is the violation of the obligation by the debtor. Extinguishment of Obligations Obligations are extinguished a. by payment or performance b. by the loss of the thing due c. by the condonation or remission of the debt d. by the confusion or merger of the rights of creditor and debtor e. by compensation f. by novation Causes of extinguishments of obligations a. Death of a party in case the obligation is a personal one b. Mutual desistance or withdrawal c. Arrival of resolutory period d. Compromise e. Impossibility of fulfillment f. Happening of a fortuitous event Payment or Performance a. Payment may consist of not only in the delivery of money but also the giving of a thing, the doing of an act, or not doing of an act. b. Debt may refer to an obligation to deliver money, to deliver a thing, to do an act, or not to do an act. Ex.: X agreed to paint the house of Y for ₱20,000. X did not paint the kitchen anymore and instead asked Y to pay him ₱20,000 less the cost of painting the kitchen. Y can refuse to pay X because the debt of Y will arise only after the debt of X is completely rendered. Person to whom payment shall be made a. the creditor or obligee b. his successor in interest c. any person authorized to receive it Ex.: A owes B ₱10,000. In this case, A must pay B or any person authorized by B or in case of his death, his heirs or any person authorized by law. That A acted in good faith in paying to the wrong party is not an excuse. Effect of payment to a third person Payment to a third person or wrong party is not valid except insofar as it has redounded to the benefit of the creditor. Payment by cession – special form of payment. It is the assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of their credits. Cession – the formal giving up of rights, property, or territory by a state. Requisites of payment by cession a. There must be two or more creditors b. The debtor must be insolvent c. The cession must be accepted by the creditors Ex.: A is indebted to several creditors in the total amount of ₱2M. His assets are not sufficient to pay all his debts. With the consent of his creditors, A may assign his property to them to be sold, to satisfy their credits. If the net proceeds of the sale amount only to ₱1.5M, A is still liable for the balance of ₱500,000 unless there is a stipulation that the assignment shall be in full satisfaction of all his debts. Tender of payment – the act, on the part of the debtor, of offering to the creditor the thing or amount due. The debtor must show that he has in his possession the thing or money to be delivered at the time of the offer. Consignation – the act of depositing the thing or amount due with the proper court when the creditor does not desire or cannot receive it, after complying with the formalities required by law. Requisites of a valid consignation a. existence of a valid debt which is due b. tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it c. previous notice of consignation to persons interested in the fulfillment of the obligation consignation of the thing or sum due subsequent notice of consignation made to the interested parties. Ex.: 1. A owes B a sum of money. On the due date of the obligation, A offers to pay the obligation but B refuses to accept the payment without any justifiable reason. In this case, A’s obligation will not be extinguished until he has made a valid consignation. 2. A entered into a contract with B. A is given the right to cancel the contract upon payment of ₱10000 to B. In this case, A has no existing debt to B. The amount of ₱10,000 is not owed by A, being merely the consideration for the exercise of his right to cancel the contract. Tender of payment in good faith is sufficient to entitle A to cancellation. Requirements for valid tender of payment a. Tender of payment must comply with the rules on payment. The tender, even if valid, does not by itself produce legal payment, unless it is completed by consignation. b. It must be unconditional and for the whole amount. c. It must be actually made. The manifestation of a desire or intention to pay is enough. Creditor bears expenses of consignation (entrusting) The consignation is made necessary because of the fault or unjust refusal of the creditor to accept payment. That being the case, it is but just that the expenses should be charged against him. When a loss of thing will extinguish an obligation to give a. The obligation is to deliver a specific or determinate thing. b. The loss of the thing occurs without the fault of the debtor. c. The debtor is not guilty of delay. Effect of difficulty of performance The general rule is that impossibility of performance releases the obligor. Ex.: A agreed to construct a road near a mountain. A very strong typhoon caused an avalanche making the construction of the road dangerous to human lives which was not foreseen or contemplated by the parties. In this case, A may be released, in whole or in part, from his obligation to continue with the construction. CONDONATION OR REMISSION OF DEBT Condonation or remission – the gratuitous abandonment by the creditor of his right against the debtor. It is thus a form of a donation. Requisites of condonation or remission a. It must be gratuitous. b. It must be accepted by the obligor. c. The parties must have capacity. d. It must not be inofficious. e. If made expressly, it must comply with the forms of donations. NOVATION Novation – the extinction of an obligation through the creation of a new one which substitutes it. – a contract containing two stipulations: one to extinguish an existing obligation, the other to substitute a new one in its place. Real or objective novation – when the object (or cause) or principal conditions of the obligation are changed. Ex.: A agreed to deliver to B a car. Later, they entered into another contract whereby, instead of A delivering a car, he would deliver 10 air conditioners. The obligation to deliver the car is extinguished by the obligation to deliver the 10 air conditioners. Personal or subjective obligation – when the person of the debtor is substituted and/or when a third person is subrogated in the rights of the creditor. Ex. If after the constitution of the obligation, both parties agreed that A will substitute for D or that C will be subrogated in the rights of B, there is a personal novation. In this case, A becomes the new debtor, or C, the new creditor. Mixed novation – When the object and/or principal conditions of the obligation and the debtor or the creditor, or both the parties, are changed. It is a combination of real and personal novations. Ex.: If the agreement of the parties is that D will deliver to C the 10 air conditioners, instead of D delivering a car to B, then there is a mixed novation because the object of the obligation and the person of the creditor are changed. Kinds of personal novation a. Substitution – when the person of the debtor is substituted. b. Subrogation – when a third person is subrogated in the rights of the creditor. Kinds of substitution a. Expromission – that which takes place when a third person of his own initiative and without the knowledge or against the will of the original debtor assumes the latter’s obligation with the consent of the creditor. It logically requires the consent of the third person and the creditor. b. Delegacion – that which takes place when the creditor accepts a third person to take place of the debtor at the instance of the latter. The creditor may withhold approval. Ex. 1. D (debtor) tells C (creditor) that A will pay D’s debt. C agrees. It does not necessarily mean that there is delegacion here. But if D tells C that T will pay his debt and he asks C to release him from his obligation, to which C agrees, delegacion results. 2. Suppose, in the same example, it is T who approaches C and tells him that T will pay the debt of D. C agrees. There is no expromission in this case, unless there is an agreement that D shall be released from his obligation to C.  Contracts Engr. Lito I. Mauro Contract – meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contract and obligation distinguished Contract is one of the sources of obligations. On the other hand, obligation is the legal tie or relation itself that exists after a contract has been entered into. There can be no contract if there is no obligation. But an obligation may exist without the contract. Contract and agreement distinguished. Contracts are agreements enforceable through legal proceedings. Agreements which cannot be enforced by action in the courts of justice (like an agreement to go to a dance party) are not contracts but merely moral or social agreements. A contract cannot be given effect if it is contrary to law because law is superior to a contract. Contract must not be contrary to morals. Morals deal with norms of good and right conduct evolved in a community. These norms may differ at different times and places and with each group of people. Ex.: An agreement that X is to render service as a servant to Y without compensations as long as X has not paid his debt is reprehensible and censurable. It is also contrary to law. Contract must not be contrary to public order Public order refers principally to public safety although it has been considered to mean also the public weal. Ex.: A stipulation in a contract of lease whereby the landlord can use force to eject the tenant in case of failure of the latter to pay the rent agreed upon is void as being against public order. Contract must not be contrary to public policy. Public policy is broader than public order, as the former may refer not only to public safety but also to considerations which are moved by the common good. Ex.: X stole the car of Y. Later, they entered into a contract where Y will not prosecute X in lieu of ₱50,000. A contract is an agreement which gives rise to obligations. It must bind both parties in order that it can be enforced against either. Without this equality between the parties, it cannot be said that the contract has the force of law between them. Ex.: A agreed to sell his car to B for ₱100,000. The contract is binding upon both contracting parties and either of them can enforce the contract against the other. Classification of contracts according to perfection a. Solemn contract – that which requires compliance with certain formalities prescribed by law. (e.g. donation of real property which must be in a public instrument) b. Consensual contract – that which is perfected by mere consent. (e.g. sale, lease, agency) c. Real contract –that which is perfected by the delivery of the thing subject matter of the contract. (e.g. pledge) Stages in the life of a contract a. Preparation or negotiation – This includes all the steps taken by the parties leading to the perfection of the contract. At this stage, the parties have not yet arrived at any definite agreement. b. Perfection or birth – This is when the parties have come to a definite agreement or meeting of the minds regarding the subject matter and cause of the contract. c. Consummation or termination – This is when the parties have performed their respective obligations and the contract may be said to have been fully accomplished or executed, resulting in the extinguishments or termination thereof. Ex.: 1. A offers to sell his car to B for ₱100,000. B asks A to show him the car. Later, A brings the car and shows it to B. B offers to pay ₱80,000 for the car. Here, the parties are taking all the steps that may lead to the perfection of the contract. 2. Now, if A agrees to sell the car for ₱80,000, the contract is perfected because there is a meeting of the minds upon the subject matter and the cause of the contract. 3. The contract will be consummated after A delivers the car to B and B pays ₱80,000. B becomes the owner of the car and A, the owner of the money paid by B. As a general rule, a person is not bound by the contract of another of which he has no knowledge or to which he has not given his consent. A contract involves the free will of the parties and only he who enters into the contract can be bound thereby. Essential Requisites of Contracts There is no contract unless the following requisites concur: a. Consent of the contracting parties b. Object certain which is the subject matter of the contract c. Cause of the obligation which is established Classes of elements of a contract a. Essential elements – those without which no contract can validly exist. They are also known as requisites of a contract. They may be subdivided into: Common – those present in all contracts, namely, consent, object, and cause. Special – those not common to all contracts or those which must be present only in, or peculiar to, certain specified contracts. b. Natural elements – those that are presumed to exist in certain contracts unless the contrary is expressly stipulated by the parties, like warranty against eviction or warranty against hidden defects in sale. Accidental errors – or the particular stipulations, clauses, terms, or conditions established by the parties in their contract like conditions, period, interest, penalty, etc. And, therefore, they exist only when they are expressly provided by the parties. Consent Consent – the meeting of minds between the parties on the subject matter and the cause which are to constitute the contract. Offer – a proposal made by one party to another to enter into a contract. It is more than an expression of desire or hope. It is really a promise to act or to refrain from acting on condition that the terms thereof are accepted by the person (offeree) to whom it is made. The offer must be certain or definite so that the liability (or the rights) of the parties may be exactly fixed because it is necessary that the acceptance be identical with the offer to create a contract. Ex.: a. “Will you buy this watch for ₱1,000?” This is an offer. b. “I am willing to consider the sale of my land to you for ₱150,000.” The offer here is uncertain. Its acceptance will not create a contract. c. “I am willing to buy you a car.” There is no offer because it is incomplete. No price is given. Acceptance – the manifestation by the offeree of his assent to the terms of the offer. Without acceptance, there can be no meeting of the minds between two parties. The acceptance of an offer must be absolute or unqualified. It must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. Ex.: A asked B: “Will you buy my car for ₱150,000?” If B answers “yes, I accept your offer,” or “yes, I agree,” or just “yes,” the acceptance of B is absolute or unconditional. The following cannot give consent to a contract a. unemancipated minors b. insane or demented persons, and deaf-mutes who do not know how to write Drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent. These conditions are equivalent to temporary insanity. Contracts entered into during a lucid interval Lucid interval – a temporary period of sanity. A contract entered into by an insane or demented person during a lucid interval is valid. It must be shown, however, that there is a full return of the mind to sanity as to enable him to understand the contract he is entering into. Under the Rules of Court, the following are considered incompetents and may be placed under guardianship a. persons suffering the accessory penalty of civil interdiction b. hospitalized lepers c. prodigals d. deaf and dumb who are unable to read and write e. those who are of unsound mind even though they have lucid intervals f. those who, by reason of age, disease, weak mind and other similar causes, cannot, without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation Characteristics of consent a. It must be intelligent – there is capacity to act. b. It is free and voluntary – there is no vitiation of consent by reason of violence or intimidation. c. It is conscious or spontaneous – there is no vitiation of consent by reason of mistake, undue influence, or fraud. Vices of consent a. error or mistake b. violence or force c. intimidation or threat or duress d. undue influence e. fraud or deceit Mistake or error – the false notion of a thing or a fact material to the contract. Violence requires the employment of physical force. For intimidation to vitiate the consent of a party to a contract, the following requisites should be present a. It must produce a reasonable and well-grounded fear of an evil. b. The evil must be imminent and grave. c. The evil must be upon his person or property, or that of his spouse, descendants, or ascendants. d. It is the reason why he enters into the contract. Ex.: If X signs the document because a gun is pointed at him by Y who threatens to kill him and he has no reason to believe that Y will not carry out his threat, the intimidation would vitiate consent. But if X was merely intimidated that he would be shot by Y and the latter had no gun at the time of the threat, there is no intimidation. All things which are not outside the commerce of men, including future things, may be the object of a contract. Requisites of things as object of contract In order that things may be the object of a contract, the following requisites must occur: a. It must not be impossible, legally or physically. b. The thing must be within the commerce of men, that is, it can legally be the subject of commercial transaction. c. It must be in existence or capable of coming into existence. d. It must be determinate or determinable without the need of a new contract between the parties. Requisites of services as object of contract In order that service may be the object of a contract, the following requisites must occur: a. The service must be within the commerce of men. b. It must not be impossible, physically or legally. c. It must be determinate or capable of being made determinate. Rights as object of contract Ex.: a. Outside the commerce of men – Things of public ownership such as sidewalks, public places, bridges, etc., things that are common to everybody such as air, sunlight, rain, etc. b. Impossible, physically and legally – Prohibited drugs and all illicit objects, to kill a person  c. Determinate things – All the sacks of rice in a bodega,; my land with the smallest area; the land at the corner of a particular street. d. Future things or rights – Things to be manufactured, raised, or acquired after the perfection of the contract such as wine that a vineyard is expected to produce; rice to be harvested next harvesting season; young animals not yet in existence, etc. Cause of Contracts Cause (causa) – the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract. Ex.: X sells a watch to Y for ₱5,000. As far as X (the seller) is concerned, the subject matter or object is the watch and the cause is the price. As regards Y (buyer), the subject matter or object is the price and the cause is the watch. The cause of X is the delivery of the price and for Y, the delivery of the watch. But for both X and Y, the subject matter of the transaction is the watch. Classification of contracts according to cause a. Onerous – one the cause of which, for each contracting party is the prestation or promise of a thing or service by the other. In this contract, the parties are reciprocally obligated to each other. Ex.: Sale; lease of thing; partnership b. Remuneratory or remunerative – one the cause of which is the service or benefit which remunerated. The purpose of the contract is to reward the service that had been previously rendered by the party remunerated. Ex.: X rendered service as the defense counsel of Y who agreed to pay X ₱10,000 for said services. c. Gratuitous – one the cause of which is the mere liberality of the benefactor or giver. Ex.: Pure donation Requisites of cause a. It must exist at the time the contract is entered into. b. It must be lawful. c. It must be true or real. Effect of absence of cause Absence or want of cause means that there is a total lack of any valid consideration for the contract. Contracts without cause confer no right and produce no legal effect whatever. Thus, a contract which is absolutely simulated or fictitious is inexistence and void. Form of Contracts The form of contract refers to the manner in which a contract is executed or manifested. The contract may be oral, or in writing, or partly or and partly in writing. Classification of contracts according to form a. Informal or common contract – that which may be entered into in whatever form provided all the essential requisites for their validity are present. b. Formal or solemn contract – that which is required by law for its efficacy to be in a certain specified form. Contracts which must appear in a public document A public document or instrument is one which is acknowledged before a notary public or any official authorized to administer oath, by the person who executed the same. a. Creation, etc., of real rights over immovable property. Ex.: As security for his debt, D mortgaged his land to C. This mortgage must appear in a public document. The extinguishments of the mortgage, upon payment of the debt by D, must likewise appear in a public document b. Cession or renunciation of hereditary rights or those of conjugal partnership of gains. Ex.: X and Y are the heirs of Z, their deceased father. X, being financially stable, renounces his share in the inheritance. This renunciation must appear in a public document.  Power to administer property. Ex.: X is leaving for the U.S. to study for 2 years. He appoints Y, agent, to manage his property. In this case, the authority of Y to administer the property of X must appear in a public document.  Cession (surrendering) of actions or rights. Ex.: D mortgaged his land to C to secure the payment of a debt. This mortgage appears in a public document. The cession by C of his right, as mortgagee, to T must also be in a public document. Interpretation of a contract – the determination of the meaning of the terms or words used by the parties in their contract. Ex. A contract was executed between A and B. The contract recites that it is a sale of parcel of land belonging to A for ₱500,000. In the contract, A is the vendor and B, the vendee. The terms of the contract are clear and it does not appear from the circumstances that the intention of the parties is contrary to the literal meaning of said terms. Therefore, the contract should be considered a contract of sale. No interpretation should be given which would alter or change the plain meaning of the wording thereof, it not being lawful to make a new contract between the parties. Voidable or annullable contracts are those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent. Ratification cleanses the contract from all its defects from the moment it was constituted. Unenforceable contracts are those that cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law. Unauthorized contracts are those entered into in the name of another person by one who has been given no authority or legal representation or who has acted beyond his powers. Voidable contracts are valid contracts until annulled unless there has been a ratification. These are those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent. Rescissible contracts are valid contracts because all the essential requisites of a contract exist but by reason of injury or damage to one of the parties or to third persons, such as creditors, the contract may be rescinded. Ex.: G is the guardian of M (a minor). G sells the property of M worth ₱200,000 for only ₱150,000. The contract of sale cannot be rescinded because the lesion (injury) is not more than ¼. However, if the property is sold for less than ₱150,000, M can rescind the sale by proper action in court upon reaching the age of majority. Void or inexistent contracts are absolutely null and void. Void contracts have no effect at all and cannot be ratified. Rescission is a remedy granted by law to the contracting parties and sometimes even to third persons in order to secure reparation of damages caused them by a valid contract. Types of contracts Contract is made after business arrangement is set. In construction of an architectural or engineering work, it requires a group or organization of expert of various trade and related works to implement such complex undertaking and carry out the work. A. The Lump-Sum contract. The oldest and most common method of letting work under contract is by receiving competitive bids with fixed prices. It is commonly referred to as “Hard Dollar contracts”. The contractor agrees to perform a stipulated job of work in exchange for a fixed sum of money. The satisfactory completion of the work for the stated amount remains the obligation of the contractor, regardless of the difficulties and troubles that may be experienced in the course of construction activities and even though the total cost of the work may turn out to be greater than the contract price. This type of contract is popular with owners for the obvious reason that the total cost of the project is known in advance. Advantages The cost is known before the work began. Though the actual cost maybe high, a definite limit is fixed. The responsibilities related to work are carried by the contractor. Disadvantages It may lead to exorbitant payments for any extra work required. It gives no information as to what the contractor regards as a fair price for each item of the work to perform, on which deductions omitted and extra payments be based. New work may be done on labor and material basis but usually laborers tend to be inefficient knowing their work benefits only their employer. B. Contract for Cost-Plus-a-Percentage The most common method used to obviate the difficulties of the fixed price contract is to pay the contractor the actual cost of the construction work with a specified percentage as compensation for his overhead expenses, personal services, and profits. It does not provide any direct incentive for the contractor to minimize construction costs. Rather, it seems to work the other way. Advantages The owner will pay only such costs as are actually incurred. As the risk or hazard of construction is entirely removed from the contractor, the owner can secure his services with the advantages of his skill and experience. Disadvantages Every increase in cost increases the amount payable to the contractor. A contractor might be tempted to deliberately increase the cost notwithstanding his moral obligations C. Contract for Cost-Plus-a-Fixed Sum This is a substitute from a percentage to a fixed sum where the contractor can not profit by any increase in cost. It secures the greatest returns for the contractor by keeping the least expenditures of time and money for the owner. When this scheme is utilized, the work must be of such a nature that it can be fairly well defined and a reasonably good estimate of cost can be approximated. The contractor computes the amount of the fee on the basis of the size of the project, estimated time of construction, nature and complexity of the work, hazards involved, location of the project, equipment and manpower requirements, etc. Advantages This type of contract eliminates certain objectionable terms of the percentage form of contract. The contractor, to secure the greatest returns, will keep the least expenditures of time and money for the owner. Disadvantages Quality of work might suffer just to keep the least expenditures of time and money for the owner. Since the contract will just be receiving a fixed sum aside from contract for cost, he might become lax in fulfilling the contract. D. Contract for Cost-Plus-a-Variable Premium This is a contract where the contractor undertakes to complete the work for a fixed sum and in a definite time. He will be paid in addition to the sum a stated premium which is reduced or increased accordingly as the actual cost and time of completion are greater or less than the stipulated costs and time of completion. Advantages The owner can determine the final cost as almost as closely as under the lump sum contract. If the cost of the work is less than the estimate, the owner is benefited to the extent one-half the amount saved. The other half is paid to the contractor as an extra premium earned. Disadvantages If the cost of the work increases, the owner pays half the additional cost and the other half is deducted from the contractor’s premium. This is also true with the time of completion, wherein an equivalent amount per day will be shared either as an increase or decrease for two parties.  The estimated cost may be high and the time of completion too great, that the contractor may secure an unfair premium by his ability to reduce the cost and time below his estimated. E. Construction by the Direct Employment The responsibility for the cost and construction is placed on a group created by the owner or governmental body wherein results depend mainly on their efficiency. Advantages The operation is said to be flexible and the owner has control over the operation. In case required, the construction maybe started before the details on plans and specifications have been completed thereby delay is sometimes avoided. The owner can choose materials that exactly suit his desires without any detailed plans and specifications and contract. Disadvantages There is always a danger of interference in the personnel of the organization that will seriously handicap and injure the efficiency. Personal responsibility is often minimal or missing for accomplishing proper work at the lowest cost since no personal incentive or gain to keep in maintaining construction cost at lower price.  It is difficult for the owner to retain skilled workers. There are often hard times in looking for good superintendents and foremen since at normal times very seldom will accept temporary jobs.  Tools and equipment acquired will be sold at lower prices after the completion of work. F. The Unit-Price Contract It is based on estimated quantities of defined items of work and costs per unit amount of each of these work items. The owner compiles the estimated quantities, and the unit costs are those bid by the contractor for carrying out the stipulated work in accordance with the contract documents. The total sum of money paid to the contractor for each work item remains an indeterminable factor until completion of the project, because payment is made to the contractor based on units of work actually done and measured in the field. The owner does not know the exact ultimate cost of the construction until completion of the project. G. Cost-Plus-Fee Contract This is an open-ended contract in the sense that the total construction cost to the owner cannot be known until completion of the project. When the drawings and specifications are not complete at the time of contract negotiation, the owner and contractor negotiate what is called a ‘scope contract’. Four important considerations A definite and mutually agreeable subcontract – letting procedure should be arranged. There must be a clearly understood agreement concerning the determination and payment of the contractor’s fee. A common understanding regarding the accounting methods to be followed is essential. A list of job costs to be reimbursable to the contractor should be set forth. Contract Documents a. Advertisement, or request for bids b. Instruction to bidders c. Proposal d. General conditions e. Supplementary conditions f. Drawings g. Technical Specifications h. Proposal i. Bid Bond j. Agreement k. Performance Bond Lowest responsible bidder – the lowest bidder whose offer best responds in quality, fitness, and capacity to fulfill the particular requirements of the proposed work and with the terms of the contract. Agreement – document specifically designed to formalize the construction contract. It acts as a single instrument that brings together all of the contract segments by reference, and it functions for the formal execution of the contract. Progress payments. It is normally neither practicable nor desirable for the contractor to finance the construction from its own resources. In lump-sum contracts, the degree of completion of each major work category is usually expressed as a percentage. Fixed-price contracts commonly require the contractor to submit applications for payment at least 10 days before the date established for each progress payment. The quantities of work done on unit-price contracts are determined by the field measurement of work put in place. Cost-plus contracts usually provide for the contractor to submit payment vouchers to the owner at specified intervals during the life of the contract. Many contracts provide that if the owner does not make timely payments to the contractor as required, the contractor has the option of stopping the work. Owner supplied & excluded items. This part of the contract describes the materials excluded in the scope of the Contractor and instead will be supplied by Owner in accordance with the construction schedule. In case where delivery of Owner Supplied Materials is delayed and the Contractor is forced to advance its own material, all costs, handling charges and surcharges for such materials as advanced by the Contractor for the Owner shall be for the account of the Owner. Scope of works. Scope of works is the performance or service to be rendered by the Contractor under such agreement until completion or delivery of the project as stipulated in the contract documents. Contract price – the amount in money or other consideration to be paid by the Owner to the Contractor for the execution of the work in accordance with the contract. Adjustment of contract price Adjustment of contract price takes place under such agreement in scope there are change orders or variation orders from the original scope of works as stipulated in the contract and contract document. Change order is a written order to the contractor issued by the Owner after the execution of the contract authorizing a change or variation in the work or an adjustment in the contract price or contract time. Terms of payment – describes how the down payment, progress billing, retention and release of retention are being paid by the Owner. There are certain insurance and surety required to be submitted to the Owner prior to Contractor’s claim of payment. Time of completion – the period of time allowed by the Contractor for the completion of the project or any stipulated portion thereof. Failure to complete works. In case of delay in the completion and turnover of contract works, the Contractor shall pay the Owner liquidated damages under the contracted computations but not greater than the percentage of contract price set forth. Retainage Many construction contracts provide that the owner will retain a certain percentage of the progress payments. A retainage of 10% is typical. The Warranty Period One year is a commonly specified warranty period, although periods of up to 5 years are sometimes required to make good, at its own expense, defects detected during this period. Contract Time When the contract time is stated to be a given number of calendar days, the date on which the time begins is an important matter. Construction contracts usually state that the time will begin on the date the contract is signed or on the date the contractor receives a formal ‘notice to proceed’. Liquidated Damages. An advantage to the use of a liquidated damage provision in a construction contract is the possible avoidance of subsequent litigation between owner and contractor. Acceleration – refers to the owner’s directing the prime contractor to accelerate its performance to complete the project at an earlier date than the current rate of work advancement will permit. Differing site condition, or changed condition, or concealed condition – refers to some physical aspect of the project or its site that differs materially from that indicated by the contract documents or that is of an unusual nature and differs materially from the conditions ordinarily encountered. Owner-Caused Delay Examples include delays in making the site available to the contractor, failure to deliver owner-provided materials on time, unreasonable delays in the approval of shop drawings, delays caused by another contractor, delays in issuance of change orders, and suspension of the work because of financial or legal difficulties. Value Engineering It is applied after the contract is awarded and is concerned with the elimination or modification of any contract provision that cost to a project but is not necessary to the structure’s required performance, safety or maintenance. Termination of the Contract a. Material breach of contract by either party b. Default and failure to perform under the contract c. Mutual agreement of both parties d. By giving the contractor written notice to this effect Subcontract – an agreement between a prime contractor and a subcontractor under which the subcontractor agrees to perform a certain specialized part of the work. Purchase order – a written document that defines and prescribes the conditions pertaining to a purchase of materials, supplies, equipment, machinery, and similar goods. Contractor’s responsibility for accidents and damages a. Safeguard to be undertaken by the contractor. Contractor shall take all necessary precautions for the safety of employees and workmen on the work and comply with all laws to prevent injury to persons on, about or adjacent to the premises where the works is being performed.  b. Owner not to be responsible The contractor shall render the owner free and harmless for the death of the disease contracted or injury received by the contractor or any of his employees or laborers, for any damage done by or to contractor’ plant or materials from any source or cause and damages caused by him or his employees to adjacent property. c. Contractor’s default The owner shall have the right to undertake reasonable safety and protection measures in case of contractor’s default and charge the cost of such measures to the contractor. Contract bond form – a simple document that makes no attempt to describe in detail the specific liabilities of the surety. The bond can be invoked by the owner only if the contractor is in breach of contract. Performance bond – acts primarily for the protection of the owner. It guarantees that the contract will be performed and that the owner will receive its structure, built in substantial accordance with the terms of the contract. Payment bond – acts primarily for the protection of third parties to the contract and guarantees payment for labor and materials used or supplied in the performance of the construction. Indemnity of surety Under the bond, the surety indemnifies the owner against default by the contractor. They in turn must indemnify the surety against any claim that may be brought against the surety because of the contractor’s failure to perform in the prescribed manner. Contractor’s insurance and bonds a. Contractor’s Liability Insurance The contractor shall secure and maintain insurance coverage from an insurance company acceptable to the owner as will protect himself, his sub-contractors and the owner from claims for bodily injury, death or property damage which may arise under the contract. b. Accident Insurance for Workers The contractor shall, in additional to compulsory coverage of workers under the Workmen’s Compensation Law, obtain insurance coverage for accidental death or injury of his employees and laborers without regard to their tenure and employment. c. Contractor’s fire insurance In addition to such Fire Insurance as the contractor elects for his work, he shall secure and maintain the policies upon such structures and materials and such amounts as shall be designed in the joint names of the Contractor and the Owner as their respective interest may appear. d. Contractor’s Performance and Payment Bonds The contractor, prior to signing the contract, shall furnish a Performance Bond equal to 15% of the contract amount for the faithful performance of his work and 15% bond covering contractor’s obligations from the contract to its workers, subcontractors and suppliers. e. Contractor’s Guarantee Bond The Performance and Payment Bonds will be released by the Owner upon posting by the contractor of a Guarantee Bond equivalent to the amount of the retention released to the contractor. The Guarantee bond shall be for a period of 1 year commencing from the date of posting as a guarantee that all materials and workmanship installed under the contract are of acceptable quality. Owner’s Responsibilities and Liabilities a. Advance payment An advance payment in an amount to be mutually agreed upon shall be paid by the owner to the contractor, provided that the contractor shall post a surety bond of equivalent amount callable on demand and acceptable to the owner to guarantee its repayment. The contractor shall use the advance payment for mobilization purchase of materials and the like for the project. This shall be recouped pro rata in the progress billing. b. Protection of Employees and Professionals performing services for the owner The owner shall be responsible for and shall maintain such insurance as will protect him from liability for personal injury including disease and death of persons under his employ or service whether as temporary or permanent in status that are assigned to the project. c. Owner’s optional insurance The owner may maintain such insurance as will protect him from his contingent liability for damages, for personal injury, including death, which may arise from the work under the contract. Other warranties or responsibilities of the contractor a. In case of any defect or defects in workmanship or materials which may become apparent in the course of the construction, the contractor, upon the request of the owner, shall attest own expense, tear down and replace such portion of the work done and/or materials installed that as in the owner’s reasonable option, are unsound or defective, or not in accordance with plans and specifications. b. The hereby does warrant and guarantee that all the materials to be supplied by it under this agreement are new, first class, free from defect and shall fully comply in every respect with the specifications, approved samples and other requirements of the contract plans and other related contract documents. c. The contractor guarantee and shall maintain the stability of all works, equipment and materials furnished and keep the same in good repair and condition for a period of 1 year after issuance of final in good repair and condition for a period of 1 year after issuance of final acceptance of the work by the owner. Defects appearing during this period or any damages resulting from such defects shall be corrected without expense to the owner. CE CODE OF ETHICS Engr. Lito I. Mauro  American Society of Civil Engineers Fundamental Principles 1. Engineers uphold and advance the integrity, honor and dignity of the engineering profession by: a. using their knowledge and skill for the enhancement of human welfare and the environment; b. being honest and impartial and serving with fidelity the public, their employers and clients; c. striving to increase the competence and prestige of the engineering profession; and d. supporting the professional and technical societies of their disciplines. 2. Fundamental Canons a. Engineers shall hold paramount the safety, health and welfare of the public and shall strive to comply with the principles of sustainable development in the performance of their professional duties. b. Engineers shall perform services only in areas of their competence. c. Engineers shall issue public statements only in an objective and truthful manner. d. Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest. e. Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others. f. Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession. g. Engineers shall continue their professional development throughout their careers, and shall provide opportunities for the professional development of those engineers under their supervision. 3. Guidelines to Practice – Under the Fundamental Canons of Ethics CANON 1. Engineers shall hold paramount the safety, health and welfare of the public and shall strive to comply with the principles of sustainable development in the performance of their professional duties. Fundamentals a. Engineers shall recognize that the lives, safety, health and welfare of the general public are dependent upon engineering judgments, decisions and practices incorporated into structures, machines, products, processes and devices. b. Engineers shall approve or seal only those design documents, reviewed or prepared by them, which are determined to be safe for public health and welfare in conformity with accepted engineering standards. c. Engineers whose professional judgment is overruled under circumstances where the safety, health and welfare of the public are endangered, or the principles of sustainable development ignored, shall inform their clients or employers of the possible consequences. d. Engineers who have knowledge or reason to believe that another person or firm may be in violation of any of the provisions of Canon 1 shall present such information to the proper authority in writing and shall cooperate with the proper authority in furnishing such further information or assistance as may be required. e. Engineers should seek opportunities to be of constructive service in civic affairs and work for the advancement of the safety, health and well-being of their communities, and the protection of the environment through the practice of sustainable development. f. Engineers should be committed to improving the environment by adherence to the principles of sustainable development so as to enhance the quality of life of the general public. CANON 2. Engineers shall perform services only in areas of their competence. Fundamentals a. Engineers shall undertake to perform engineering assignments only when qualified by education or experience in the technical field of engineering involved. b. Engineers may accept an assignment requiring education or experience outside of their own fields of competence, provided their services are restricted to those phases of the project in which they are qualified. All other phases of such project shall be performed by qualified associates, consultants, or employees. c. Engineers shall not affix their signatures or seals to any engineering plan or document dealing with subject matter in which they lack competence by virtue of education or experience or to any such plan or document not reviewed or prepared under their supervisory control. CANON 3. Engineers shall issue public statements only in an objective and truthful manner. Fundamentals a. Engineers should endeavor to extend the public knowledge of engineering and sustainable development, and shall not participate in the dissemination of untrue, unfair or exaggerated statements regarding engineering. b. Engineers shall be objective and truthful in professional reports, statements, or testimony. They shall include all relevant and pertinent information in such reports, statements, or testimony. c. Engineers, when serving as expert witnesses, shall express an engineering opinion only when it is bounded upon adequate knowledge of the facts, upon a background of technical competence, and upon honest conviction. d. Engineers shall issue no statements, criticisms, or arguments on engineering matters which are inspired or paid for by interested parties, unless they indicate on whose behalf the statements are made. e. Engineers shall be dignified and modest in explaining their work and merit, and will avoid any act tending to promote their own interests at the expense of the integrity, honor and dignity of the profession. CANON 4. Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest. Fundamentals a. Engineers shall avoid all known or potential conflicts of interest with their employers or clients and shall promptly inform their employers or clients of any business association, interests, or circumstances which could influence their judgment or the quality of their services. b. Engineers shall not accept compensation from more than one party for services on the same project, or for services pertaining to the same project, unless the circumstances are fully disclosed to and agreed to, by all interested parties. c. Engineers shall not solicit or accept gratuities, directly or indirectly, from contractors, their agents, or other parties dealing with their clients or employers in connection with work for which they are responsible. d. Engineers in public service as members, advisors, or employees of a governmental body or department shall not participate in considerations or actions with respect to services solicited or provided by them or their organization in private or public engineering practice. e. Engineers shall advise their employers or clients when, as a result of their studies, they believe a project will not be successful. f. Engineers shall not use confidential information coming to them in the course of their assignments as a means of making personal profit if such action is adverse to the interests of their clients, employers or the public. g. Engineers shall not accept professional employment outside of their regular work or interest without the knowledge of their employers. CANON 5. Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others. Fundamentals a. Engineers shall not give, solicit or receive either directly or indirectly, any political contribution, gratuity, or unlawful consideration in order to secure work, exclusive of securing salaried positions through employment agencies. b. Engineers should negotiate contracts for professional services fairly and on the basis of demonstrated competence and qualifications for the type of professional service required. c. Engineers may request, propose or accept professional commissions on a contingent basis only under circumstances in which their professional judgments would not be compromised. d. Engineers shall not falsify or permit misrepresentation of their academic or professional qualifications or experience. e. Engineers shall give proper credit for engineering work to those to whom credit is due, and shall recognize the proprietary interests of others. Whenever possible, they shall name the person or persons who may be responsible for designs, inventions, writings or other accomplishments. f. Engineers may advertise professional services in a way that does not contain misleading language or is in any other manner derogatory to the dignity of the profession. Examples of permissible advertising are as follows: Professional cards in recognized, dignified publications, and listings in rosters or directories published by responsible organizations, provided that the cards or listings are consistent in size and content and are in a section of the publication regularly devoted to such professional cards.  Brochures which factually describe experience, facilities, personnel and capacity to render service, providing they are not misleading with respect to the engineer's participation in projects described.  Display advertising in recognized dignified business and professional publications, providing it is factual and is not misleading with respect to the engineer's extent of participation in projects described.  A statement of the engineers' names or the name of the firm and statement of the type of service posted on projects for which they render services. Preparation or authorization of descriptive articles for the lay or technical press, which are factual and dignified. Such articles shall not imply anything more than direct participation in the project described.  Permission by engineers for their names to be used in commercial advertisements, such as may be published by contractors, material suppliers, etc., only by means