OBLIGATIONS & CONTRACT ID 413 PROFESSIONAL

PRACTICE AND ETHICS

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LAW
A rule of conduct, just, obligatory and laid down by a legitimate power for common
observance and benefit.

Characteristics and Requisites of Law

1. It is a rule of conduct.
2. It must be just or presumed to be just.
3. It is laid down by a legitimate. power.
4. It is obligatory or compulsory
5. Existence of a sanction or punishment in case of oon-observance of the rule of
conduct

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LAW
Sources of Law
1) Constitution
2) Legislation
3) Administrative rules and regulations
4) Judicial decisions or jurisprudence
5) Custom and other supplementary sources

Article 3 Ignorance of the law shall excuse no one from compliance therewith.

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OBLIGATIONS
R.A. 386, Book 4
The law on obligations and contracts which is the body of rules that deals with the nature and
sources of obligations and the rights and duties arising from agreements and particular contracts.

Kinds of Obligations According to Nature (Article 1423)

1. Civil Obligations - gives right of action to compel their performance

2. Natural Obligations - based on equity and natural law; does not grant a right of action to
enforce performance; merges with moral obligations

Article 1156 An obligation is a juridical necessity to give to do or not to do.

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OBLIGATIONS
ELEMENTS OF AN OBLIGATION

1) Active subject
the one who can compel compliance with the obligation; CREDITOR , OBLIGEE
2) Passive subject
the one compelled to comply with or perform the obligation; DEBITOR, OBLIGER
3) Juridical or legal tie
known as efficient cause; that which binds the parties or connects the parties to the
obligation; and
4) Prestation
that which is an object or undertaking of the obligation or that which is to be given, to
be done or not to be done

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OBLIGATIONS
Sources of Obligations (Article 1157) Article 1159

Obligations arising from contracts have the

force of law between the contracting parties
1) Law and should be complied with in good faith.
2) Contracts
Article 1167
3) Quasi-contracts
If a person obliged to do something fails to
4) Acts or omissions punished by law do it, the same shall be executed at his cost.
This same rule shall be observed if he does it
5) Quasi-delicts in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has
been poorly done be undone.

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SOURCES OF LIABILITY FOR DAMAGES (ARTICLE 1170)
1) FRAUD:
Dolo; intentional non-performance of obligation; deception. There is an intent to
evade the normal fulfillment of the obligation and to cause damage.
Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (Art. 1171)
The fraud referred to in Article 1170 is incidental fraud (dolo incidente) which is fraud
incident to the performance of an obligation. Article 1338 discusses causal fraud (dolo
causante) which is fraud used by one of the parties to a contract in securing the
consent of the other party. It vitiates consent and is ground for annulment of the
contract by the innocent party.

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FRAUD
To further distinguish the two:
A) Dolo incidente does not affect the validity of the contract while dolo causante
renders contracts voidable (which makes the contract valid but subject to annulment
by reason of defective consent)
B) Dolo incidente is fraud in the performance of an obligation while dolo causante is
fraud in getting the consent to a contract.
C) Dolo incidente renders the guilty party liable for damages while dolo causante
renders the contract defective and subject it to annulment and at the same time giving
the innocent party a right also to ask for damages.

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2) NEGLIGENCE:
Culpa; carelessness or lack of diligence. It consists in the omission of that diligence that is
required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When the negligence shows bad faith, it is considered
as equivalent to fraud. (Art. 1173)
The negligence referred to in Article 1170 is contractual negligence (culpa contractual) in
contrast with civil negligence (culpa aquiliana), further illustrated as follows:
a) Contractual negligence - culpa contractual; there is a pre-existing obligation (arising from
a contract) and
b) Civil negligence is fault in carrying - culpa aquiliana; out such negligence becomes a
source of obligation in itself without a pre-existing contract

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3) DELAY:
Mora or default; legal delay where there is failure in performance of an obligation
on time constituting a breach

KINDS OF DELAY:
a) Mora solvendi - delay on the part of the debtor to fulfill his obligation. On the
part of the debtor, it begins from the time of judicial or extrajudicial demand by the
creditor for fulfillment of the obligation. (Art. 1169)
The debtor is liable for damages in case of delay in the performance of his
obligation. He is also liable for any damage caused by fortuitous event.

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b) Mora accipiendi - delay on the part of the creditor to accept the performance of
the obligation. Creditor also bears the risk of loss of the thing due
c) Compensation morae - delay of obligors in reciprocal obligations. The delay of
the creditor neutralizesthe delay of the debtor, and vice versa. If the delay by one
party is followed by the other's, the liability of the first infractor will be balanced by
the courts. If it should not be proved who guilty party is, contract is then considered
extinguished.

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4) Contravention of the tenor of the obligation:
The violation of the stipulations in the obligation. The contravention however must not
be due to a fortuitous event or force majeure.

 Fortuitous Events/ Force Majeure

 event could not be foreseen
 unavoidable accidents

Article 1174 Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.

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FORTUITOUS EVENTS/ FORCE MAJEURE
1. Acts of Man
human intervention
war, fire robbery, invasion
2. Acts of God
independent of will of any human being
Earthquake, flood, hurricane

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PAYMENT
includes delivery of money & performance of an obligation
CONTRACTS
meeting of the minds between two persons
Binds himself to render service
Written aggreement

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CHARACTERISTICS/ BASIC PRINCIPLES OF
CONTRACTS
1. Obligatory Force
The force of law should be complied within good faith
2. Autonomy
Independence of contracts, stipulations, clauses
3. Mutuality
Must bind both contracting parties

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CHARACTERISTICS/ BASIC PRINCIPLES OF
CONTRACTS
4. Relativity/ Transmissibility
 Not transmissible by situation, by provision of law
 Between the parties, their assigns & heirs

5. Consensuality
 Perfected by mere consent
 All consequences

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STAGES OF A CONTRACT
1. Preparation/ Generation
 Negotiation stage of the contract leading to define agreement
2. Perfection/ Birth
 There has been a “meeting of the minds”
 Subject matter & cause of the contract
3. Consummation/ Termination
 Extinction of the contract by performance of obligation

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REQUISITES BEFORE A THIRD PERSON CAN BE
HELD FOR DAMAGES
1. Existence of a valid contract

2. Knowledge on the part of the third person of the existence contract

3. Interference by the third person w/out legal justification/excuse

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REQUISITES FOR A PERSON TO CONTRACT IN THE
NAME OF ANOTHER
1. Must be duly authorized (expressly or impliedly)

2. Must have by law a right to represent him

3. The contract must be subsequently ratified

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ESSENTIAL REQUISITES OF A CONTRACT

1. CONSENT of the contracting parties;

2. OBJECT certain which is the subject matter of the contract;

3. CAUSE of the obligation which is established

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REQUISITES OF CONSENT

1. There must be two or more parties

2. The parties must be capable or capacitated

3. There must be no vitiation of consent

4. There must be no conflict between what was expressly declared and what was really
intended

5. The intent must be declared properly

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OFFER
 Proposal to enter into a contract
 Mere statement of willingness
 If made through an agent, the offer is accepted from the time acceptance is communicated to him. (Art. 1322)
 Other instances when the offer becomes ineffective prior to acceptance (Art. 1323, with additions):
1. Death
2. Civil interdiction
3. Insanity
4. Insolvency
5. Failure to comply with conditions of the offer as to time, place, and manner of payment (Art. 1321)
6. Lapse of time period given to the offeree within which acceptance must be signified (Art. 1324)
7. Destruction of thing due before acceptance (Art. 1262)
8. Express or implied rejection of the offer
9. When offer is accepted with qualification or condition
10. When before acceptance is communicated, the subject matter becomes illegal or impossible

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ACCEPTANCE
 The manifestation by the offeree of his agreement to the terms of the offer
 Must be absolute. If qualified, it therefore constitutes a counter-offer.
 May be express (written or oral) or implied (inferred from actions such as receiving payment for a
sale). (Art. 1320)

PERSONS INCAPACITATED TO GIVE CONSENT

1. Un-emancipated minor
those who have not reached the age of majority and are still subject to parental authority

2. Insane/ demented persons

the mental incapacity that affects the validity of a contract must be the time when the
transaction occurs, regardless of the previous or subsequent insanity.

3. Deaf-mutes who do not know how to write

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VICES OF CONSENT

1. Mistake
 Unconscious ignorance/ forgetfulness of existence/ non-existence of a fact
2. Violence
 In order to wrest consent, serious/irresistible force is employed
3. Intimidation
 Compelled by fear of an imminent & grave evil upon his person/ property
4. Undue Influence
 Takes improper advantage over the will of another
5. Fraud
 Insidious words/ machinations

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FORMS OF CONTRACTS
Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the
law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties stated in the
following article cannot be exercised. (Art. 1356)

If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to
observe that form once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.

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PUBLIC DOCUMENTS
1. Acts & contracts have their object the creation, transmission of real rights over
immovable property.
Deed of Sale
1. Cession, Repudiation/ Renunciation of hereditary rights of the conjugal
partnership of gains.
PRE-NUP
1. Power to administer property.
SPA
1. Cession of Actions/ Rights from an act appearing in a public document.
AFFIDAVIT

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REFORMATION OF INSTRUMENTS
REFORMATION
 Remedy in equity by means of which a written instrument is made or
constructed so as to express or conform to the real intention of the parties
when some error or mistake has been committed.
 Does not rectify contracts but only the instrument purporting to, but not in
fact, evidencing the terms of the contract.

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KINDS OF DEFECTIVE CONTRACTS
1. RECESSION
cancelled, remedy granted by law to secure reparation of damage

2. VOIDABLE CONTRACTS
valid unless they are annulled
one of the parties is incapable of giving consent

RATIFICATION
in legal effect, a waiver of one’s right to annul the voidable contract

3. UNENFORCEABLE CONTRACTS
cannot be sued upon, no effect yet
both parties incapable of giving consent

4. VOID CONTRACTS
no effect at all, void ab initio
criminal/ civil laws

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CONTRACT OF A PIECE OF WORK
 CONTRACTOR
 binds himself to execute a piece of work for the employer/ client

 CONTRACTOR – SUPPLIED MATERIALS (CSM)

 furnished, deliver by contractor
 has the qualities agreed upon & no defects

 OWNER – SUPPLIED MATERIALS (OSM)

 contractor cannot claim compensation if the work is destroyed before its delivery

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ACCEPTANCE OF WORK (ARTICLE 1719)
Acceptance of the work by the employer relieves the contractor of liability for any
defect in the work, unless:
1. The defect is hidden and the employer is not, by his special knowledge, expected
to recognize the same; or
2. The employer expressly reserves his rights against the contractor by reason of the
defect.

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COMPENSATION
The price or compensation shall be paid at the time and place of delivery of the work, unless
there is a stipulation to the contrary. If the work is to be delivered partially, the price of
compensation should be equivalent or proportionate to delivery made. (Art. 1720)

If, in the execution of the work, an act of the employer is required, and he incurs in delay or
fails to perform the act, the contractor is entitled to a reasonable compensation. (Art. 1721)

If the work cannot be completed on account of a defect in the material furnished by the
employer, or because of orders from the employer, without any fault on the part of the
contractor, the latter has a right to an equitable part of the compensation proportionally to
the work done, and reimbursement for proper expenses made. (Art. 1722)

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CONTRACTOR LIABILITIES AFTER CONSTRUCTION
(ARTICLE 1723)
The engineer or architect who drew up the plans and specifications for a building is liable for
damages if within 15 years from the completion of the structure, the same should collapse by
reason of a defect in those plans and specifications, or due to the defects in the ground.
The contractor is likewise responsible for the damages if the edifice falls, within the same
period, on account of defects in the construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of the contract.
If the engineer or architect supervises the construction, he shall be solidarily liable with the
contractor
Acceptance of the building, after completion, does not imply waiver of any of the cause of
action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.

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CONTRACTOR LIMITATIONS (ARTICLE 1724)
The contractor who undertakes to build a structure or any other work for a stipulated
price, in conformity with plans and specifications agreed upon with the owner, can
neither withdraw from the contract nor demand an increase in the price on account of
the higher cost of labor or materials, save when where has been a change in the
plans and specifications, provided:
1) Such change has been authorized by the proprietor in writing; (change order
document)
2) The additional price to be paid the contractor has been determined in writing by
both parties.

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TERMINATION AT WILL BY OWNER (ARTICLE
1725)
The owner may withdraw at will from the construction of the work, although it may have been
commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which
the owner may obtain therefrom, and damages.

Article1726
When a piece of work has been entrusted to a person by reason of his personal qualifications, the
contract is rescinded upon his death.
In this case the proprietor shall pay the heirs of the contractor in proportion to the price agreed
upon, the value of the part of the work done, and of the materials prepared, provided the latter
yield him some benefit The same rule shall apply if the contractor cannot finish the work due to
circumstances beyond his control.

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COMMON FORMS OF CONTRACTS
1. LUMPSUM CONTRACT
- designer-contractor agrees to furnish labor and the material pays upon finish

2. COST-PLUS CONTRACT

1. COST-PLUS A FIXED FEE (CPFF)

- neither the employer nor the designer-contractor knows how much the job will
cost until after its completion
- fixed amount of contractors fee
2. COST-PLUS A CERTAIN PERCENTAGE (CPCP)
- compensation of contractor-designer is not fixed, exact amount can’t be determined yet
3. COST-PLUS A CERTAIN PERCENTAGE W/ INCREASE/DECREASE (CPIE)
- agrees on a basic price

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DISCHARGE OF CONTRACTS
1. Performance
2. Substantial Performance
3. Impossibility of Performance
4. Agreement
5. Breach of Contract

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DAMAGES
1. ACTUAL/COMPENSATORY DAMAGES
- adequate compensation for pecuniary loss
- just & fair to both party injured & wrongdoer

2. MORAL DAMAGES
- incapable of pecuniary estimation
- proximate result of the wrongdoer’s act & omission

3. NOMINAL DAMAGES
- vindicate/ recognize the right of plaintiff
- legal right has been violated

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DAMAGES
4. TEMPERATE/MODERATE DAMAGES
- some pecuniary loss but can’t be proved w/ certainty
- more than nominal but less than compensatory

5. LIQUIDATED DAMAGES
- be paid in case of breach
- as an indemnity/ a penalty

6. EXEMPLARY/CORRECTIVE DAMAGES
- imposed additional to moral, temperate, liquidated or compensatory damages.

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