Module 3: Contracts
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 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.: S 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.
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. S offers to sell his car to B for ₱100,000. B asks S
to show him the car. Later, S 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 S 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 S
delivers the car to B and B pays ₱80,000. B
becomes the owner of the car and S, 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:
o Common – those present in all contracts,
namely, consent, object, and cause.
o 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.
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 theofferee 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.: S 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
b. unemancipated minors
c. 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.
c. 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.
d. 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 S and B. The
contract recites that it is a sale of parcel of land
belonging to S for P500,000. In the contract, S 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 P200,000 for only P150,000.
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 P150,000, 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 in efficient
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.
Adiustment 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.