Introduction to Obligations and Contracts
Obligations
• An obligation is a juridical necessity to give to, to do, or not to do. (Art. 1156, CC)
• Obligations arise from: Law; Contracts; Quasi-contracts; Acts or omission punished
by law; and Quasi-delicts.
Definitions
by Law
1. Obligations derived from law are not presumed.
2. Governed by the Law itself
3. Agreement of the party is not necessary (e.g. Tax payment)
4. Not presume. Only expressly provided are enforceable.
by Contracts
1. Obligations arising from contracts have that force of law between the contracting
parties and should be complied in good faith.
Elements of Obligation
• Active Subject – power to demand the prestation (obligee/creditor)
• Passive Subject – bound to perform the prestation (obligor/debtor)
• Prestation or Object – not a thing but a particular conduct of the debtor
Kinds of Prestation
• To Give – consists in the delivery of movable or immovable thing, in order to create a
real right or for the use of the recipient or for its simple possession or in order to return to
its owner.
• To Do – all kinds of work or services, whether mental or physical
• Not To Do- consists in abstaining from some act, includes “not to give”, both being
negative obligations
Contract
• Art. 1305. A contract is meeting of mind between two persons whereby one bind
himself, with respect to the other, to give something or to render some service.
• Art. 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
• Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
CIVIL ENGINEERNG LAWS, ETHICS AND CONTRACTS ENGR. JOSEPH MANUEL G. GALAPON
• Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping with good
faith, usage and law.
Validity of Contracts
• Enforceability - The law will enforce the provision of a valid contract; the law will
not intervene to impose more favorable contract terms.
• Changes - An existing contract can be altered by mutual agreement, providing it
is within the framework of the existing contract.
Terms and Conditions of Contracts
• Expressed Terms
1. The conditions which are written in the contract
• Implied Terms
1. Valid conditions which are not explicitly stated
2. Often rely on established customs and practice
3. Obvious terms, which should reasonably be applied
Contract Interpretation
• Contracts are a method of communication
• Use them to ensure that all parties have the same understanding
• Draft contracts in precise and unambiguous language
• Where a contract is ambiguous it will be interpreted against the party that drafted it,
rule of CONTRA PROFERENTEM
• Read your contract
• Clarify any potentially problematic areas
Construction Contract (Major clauses)
• Contracting Parties
• Name and Location of Project
• Contract Duration
• Contract Amount
• Manner / Terms of Payment
o Down Payment
o Progress Billing
• Recoupment of Downpayment (Pro-Rated to Progress Billing)
• Retention Money
• Liquidated Damages
CIVIL ENGINEERNG LAWS, ETHICS AND CONTRACTS ENGR. JOSEPH MANUEL G. GALAPON
Remedies for Contract Violation
Damage
• A non-defaulting party is entitled to damages incurred if it can be established that:
1. There has been a breach of contract
2. The party has suffered a loss
3. The loss is as a result of the breach
• Purpose of damages is to return the injured party to the position it would be in if
the breach had not occurred i.e., damages are what is reasonably contemplated
or agreed at the time the contract is formed.
Direct Damages
• Losses directly suffered as a result of the breach
Indirect Damages
• Losses consequential to the breach
• Must have been reasonably foreseeable when the contract was contemplated
• Liquidated damage clauses must be genuine estimates of potential losses
• Penalty payments not enforceable o Liability limiting clauses enforceable
Liquidated Damages (Construction Contract)
• Liquidated damages are specified daily charges deducted from money otherwise
payable to the contractor for each day the contractor fails to meet a milestone
and/or contract completion date.
• Another way of looking at liquidated damages, is that it is the price the contractor
must pay per day for working beyond the required completion dates
• Estimated Liquidated Damages is 1/10th of 1% of the amount of the remaining
works for every day of delay beyond the required completion date.
CIVIL ENGINEERNG LAWS, ETHICS AND CONTRACTS ENGR. JOSEPH MANUEL G. GALAPON