CLSE - Wk12 062022

TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES VISAYAS
Capt. Sabi St., City of Talisay, Negros Occidental
LEARNING MODULE (Wk 12)
CLSE: Contracts, Laws,

Specifications & Ethics
Instructor: Samuel C. Feliciano (Bing)
Defective Contracts; Contract Writing & Specifications
LEARNING OUTCOMES
By the end of today’s lesson, students should have understood
and discussed the following:
1.Void or inexistent contracts
2. Contract writing and specifications
D. Void or Inexistent Contracts
• Void or inexistent contract – one which is absolutely without legal force
and effect.
• Unlike a voidable or an unenforceable contract, void or inexistent
contract is not susceptible of ratification. The action or defense for
declaration of its inexistence does not prescribe despite the long lapse of
time, and not available to the strangers to the contract.
• (Art 1409) Void/ inexistent contracts:
1) whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy
2) are absolutely simulated or fictitious
3) whose cause or object did not exist at the time of the transaction
4) whose object is outside the commerce of men (public domain or owned
by the State)
5) which contemplate an impossible service
6) where intention of parties relative to the principal object of contract
cannot be ascertained
7) are expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
• Voidable contract • Void contract
a) valid until annulled a) No legal effect is produced
b) Defect arises from incapacity or b) basis is public policy

vitiated consent
c) Can be ratified c) no ratification
d) Becomes absolutely regular after d) cannot be remedied through
the lapse of the prescriptive period to prescriptions
file an action to annul
e) Defenses available only to parties e) Defenses are available to

everybody
Unenforceable contracts Void contracts
a) exist though cannot be enforced a) no contract at all exists in a void
contract
b) can be ratified b) Cannot be ratified
c) cannot be assailed (attacked by c) can be assailed by any person
criticism, ridicule, abuse, affected
slander) by third persons
• Consequences of illegal and punishable contracts.
When the nullity of the contracts proceeds from the illegality of the cause
and object of the contract, and the act constitutes a criminal offense,
both parties being in pari delicto (both are guilty), they shall have no
action against each other, and both shall be prosecuted.
When only one of the parties is guilty, the same rule shall be applied, but
the innocent one may claim what he has given and shall not be bound to
comply with his promise.
• Explanation and illustration
• When the cause or object of the contract constitutes a criminal offense
and both parties are guilty, no action shall be maintained against each
other and they shall be prosecuted criminally. The cause and object and
other things used shall be forfeited as instruments of the crime.
• Ex: X, Y and Z enter into a contract of partnership to operate jueteng in
Marikina, a prohibited game. They agreed to put a capital of P900,000.
Owing to lack of cash, X contributed a panel car worth P50,000.00 and
P200,000 in cash, the balance to be paid in one year. Y contributed a
house and lot worth P150,000 plus P100,000.00 in cash, the balance of to
be paid in one year. Z contributed cash of P300,000.00. After six months
of operation, they were discovered by the authorities and their operation
was stopped.
Consequences are:
1) no action against each other to recover the balance of their contribution
since they are in pari delicto (both are guilty);
2) All to be prosecuted criminally for illegal gambling;
3) object and cause of their partnership contract – cash capital, panel car
and other movables purchased and needed in the operation, and house
and lot and profits, if any, shall be confiscated as effects of the crime.
• If Y who lives in Cebu was not aware of the purpose of the partnership
because X and Z told him that they will engage in general merchandizing
business, what will be his right?
1) to recover his house and lot and contribution of P100,000;
2) not compelled to pay the balance of of P50,000;
3) be exempted from criminal responsibility.
• Rule when the contract though forbidden does not constitute a criminal
offense.
1) when both parties are at fault, neither may recover what he has given
by virtue of the contract, or demand performance of the other’s
undertaking.
2) When only one of the parties is at fault, he cannot recover what he
has given by reason of the contract or ask for the fulfillment of what he
has promised him.
The other who is not at fault, may demand the return of what he has
given without any obligation to comply with his promise.
The aforesaid rule refers to illegal contracts in which the object or cause
does not constitute a criminal offense but merely prohibited. No matter
how illegal or unlawful an act may be, the same will not constitute a
criminal offense if the law does not declare it as punishable crime.
• Examples and effects of illegal contracts.
• 1) Payment of usurious interest. Interest paid in excess of the interest
allowed by the usury laws maybe recovered by the debtor with interest from
the date of payment (Art 1413).
• Under existing law, the allowable interest for unsecured loans is 14% per
annum, 12% for real estate secured loans, and higher for loans from
pawnshops.
• If the interest paid on a loan is usurious, the same maybe recovered with
interest from the time of payment since the stipulation on the interest is void.
Ex: X loaned P50,000 from Y payable in one year at 20% interest per annum.
If X paid at the end of the year P60,000, the amount of P10,000 paid as
interest may be recovered with interest.
• 2) Payment in excess of regulated prices. When the price of article or
commodity is determined by statute, or by authority of law, any person
paying an amount in excess to the maximum price allowed may recover such
excess (Art 1417).
• The government in time of acute emergency regulates the prices of prime
commodities to prevent profiteering to the prejudice of the public. So, if a
person purchased 100 bags of cement which is regulated by the Price
Stabilization Council at P245 per sack at P260 each, he can recover the
difference of what he paid and the regulated price because payment of the
excess is void.
• 3) Non-payment of legal rate for overtime work. When the law fixes, or
authorizes the fixing of the maximum number of hours of labor, and a
contract is entered into whereby a laborer undertakes to work longer than
the maximum thus fixed, he may demand additional compensation for
services rendered beyond the time limit (Art 1418).
• Ex: ABC Corp enters into a contract of employment with X whereby the
latter will work for 12 hours a day at the minimum rate fixed by law for 8-hour
work. For the 4 hours overtime work, he can recover his basic hourly rate
plus 25% additional compensation because the stipulation exempting the
employer from the pay for the 9th up to the 12th hour is void.
• 4) Payment of sub-minimum wages. When the law sets or authorizes the
setting of minimum wage for the laborers, and a contract is agreed upon by
which a laborer accepts a lower wage, he shall be entitled to recover the
deficiency (Art 1419).
• Instances when a party to the illegal contract may recover:
• 1) When money is paid or property delivered for an illegal purpose, the
contract maybe repudiated by one of the parties before the purpose has
been accomplished, or before any damage has been caused to a third
person. In such case the courts may, if the public interest will thus be
subserved, allow the party repudiating (rejecting) the contract to recover
the money or property (Art 1414).
• 2) When one of the parties to an illegal contract is incapable of giving
consent, the courts may, if the interest of justice so demands, allow
recovery of money or property delivered by the incapacitated person (Art
1415).
• Separability of valid terms in divisible contracts. In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced (Art 1420). The situation contemplated in this
article will arise if the legal terms in the contract can be separated from
the illegal ones. Ex: in usurious transactions, the principal term is to pay
the amount of the loan and the accessory stipulation is to pay the
stipulated interest. If the stipulation on the interest is excessive or violate
the usury law this stipulation would be illegal, but the principal will remain
valid and enforceable.
• Contract resulting from previous illegal contract is void (Art 1422).
• Ex: X promised to give Y a car as a reward after he killed C, the mortal
enemy of X. After the killing, the contract was changed to a lease of a
house for 10 years. The second contract being a direct result of the illegal
contract is therefore null and void.
CONTRACT-WRITING
A. Characteristics of contract-writing
1) Worded in plain language. Avoid using too technical words.
Write specifications in plain language to prevent different interpretations and
possible friction between the engineer and contractor.
2) Be concise. But important considerations must not be sacrificed for
brevity. It must be brief, but comprehensive. Certain repetitions may be
necessary for purposes of certainty and clarity. If there’s no confusion, then
there’s no court litigation.
3) Include all legal requirements – essential for validity.
B. Components of a construction contract
a) The proper agreement
1) Prologue or opening clause. "This Agreement Witnesseth," or "This
Contract." It describes the agreement and what is all about.
2) Contracting parties. Data on identities of the parties and in what capacity
are they contracting.
Ex: This CONTRACT made in Manila, Philippines, this 5th day of February, 2021, by and
between BETA PUBLICATIONS, a corporation duly organized under the laws of the
Philippines and with business address at Second Floor, Durano Bldg. Magallanes St.,
Intramuros, Manila, hereinafter referred to as OWNER and S.A.P. CONSTRUC TION CO. also
a corporation organized under the laws of the Philippines and with business address at 414
Elizalde Bldg. Ayala Ave., Makati, Metro Manila, hereinafter referred to as CONTRACTOR.
3) Subject-matter. Description of the subject matter, scope and location of
work to be performed.
Ex: That the CONTRACTOR shall construct in a work-manlike manner in accordance with
the agreed plans and specifications a condominium building upon a lot located at Block 24,
Ayala Avenue, Makati, Metro Manila, Philippines, which specifications are hereto attached
forming part of this contract; and shall perform everything required to be performed and
shall provide all labor, materials, and necessary tools and equipment to complete the same.
4) Term of the contract. Clause providing when the contract becomes
operative and the time when it shall terminate.
Ex: That the CONTRACTOR shall start the construction on Feb 15, 2021, finish the same on
or before Feb 15, 2022.
5) Contract price. Clause which provides the consideration to be paid.
Ex: That the OWNER binds himself to pay the CONTRACTOR the total sum of SEVENTY
MILLION PESOS (P70,000,000,000), Philippine Currency.
6) Attestation clause. Clause mandating the parties and their witnesses to
sign the agreement under seal before a notary public or any person
authorized by law to authenticate documents.
b) General conditions
1) Scope of contract. Define nature and scope of the work. Contractor
binds himself to furnish all the labor, materials, and equipment necessary for
the project's completion. Contract price and manner of payment be clearly
stated. Parties bind themselves to perform the terms and conditions of the
contract in good faith. Contractor should carry out work according to agreed
plans and specifications.
2) Terms of contract. Consists of time of commencement and completion of
work. Duration of contract must be stated clearly.
3) Plans and specifications. May include documents by reference or by
incorporation mutually agreed upon by the parties. Contractor must perform
the work according to plans and specifications. In case of error, neither party
must take advantage of such errors.
4) Workmanship. Contractor shall perform work in a
work-manlike manner according to agreed plans and
specifications. It must be first class. But, if quality is not
specified, then what is customarily required for such
particular work is desired.
5) Materials must be first class. Contractor must not choose inferior quality.
If there is no agreement, contractor is not required to deliver one with
superior nor one with inferior quality. Hence one with average quality can be
delivered. Also, contractor must protect all materials and provide facilities
where work may be done free from injury. Construction area must be free
from defective work or materials to avoid injury to life, limb, or property.
6) Conduct of Work. Control of work methods must be specified. Owner’s
interest includes: a) work performed according to plans and specifications;
b) work completed in accordance with period stipulated; and c) proper
safeguards are employed to prevent injury to life, limb, or property. “Liquor
ban“ must be stipulated; no illegal drugs; no smoking in designated areas;
wearing of safety paraphernalia (hard hat, safety shoes, safety vests, gloves,
etc.)
7) Contractual changes. Section giving rights to owner to terminate or stop
the work for breach of contract by the contractor—contractor cannot
continue work satisfactorily, assign the contract, or work progress is so slow.
Subcontracting is allowed by the law provided the parties agree. But
completion and quality of work is still principal contractor’s responsibility.
8) Payments. Usually partial payment procedure as the work progresses is
provided. Payment may also be withheld if defective work is not remedied or
failure on the part of the contractor to pay subcontractors. Provision on final
payment should be clearly stated.
9) Extra-work. If additional work is necessary for completion of the project
or defective work must be changed, then contractor should give a written
notice of claims. Otherwise, owner will be "unjustly enriched," at the expense
of contractor.
10) Contractor's risks and obligations. Contractor must secure all permits,
licenses required by existing laws and ordinances. Also, he must hire
experienced foremen, carpenters, masons, and other artisans to carry out
the work. And contractor may bind himself to pay the owner a certain sum
for each day of delay duly certified to by the architect.
11) Contract security. To secure performance of the contract, contractor is
required to post a Performance Bond, i.e., to safeguard interest of the owner
in case of breach.
12) Contractor's liability for injuries. Contractor must indemnify owner from
any and all claims, suits, action, proceedings, damages, etc., which may be
brought against the owner on account of injury to persons or properties as a
result of acts or omissions of contractor, its duly authorized representatives
and employees.
13) Disputes and arbitration. Disputes arising from disagreement between
contractor and owner on matters involving work or of the rights or
obligations of either shall be submitted to a board of arbiters chosen by the
parties themselves. Arbitration expenses shall be borne by the party against
whom the decision is rendered.
14) Definition of terms - necessary to avoid future litigations. Conflict may
be resolved with by resorting to definition of terms.
15) Rights of way. To ensure faithful work performance, owner must provide
camp sites and other facilities such as right of way. But contractor may
construct additional camps and facilities at the latter's expense.
16) Inspection of work. Better work progress is the result of aily inspection
tour. The parties or duly-authorized representatives should have access to
construction site for inspection. Defective materials discovered during
inspections must be immediately from work premises.
17) Engineer's authority. Engineer is usually given the power of supervision
and direction of the work—to stop or continue the work, or correct errors.
C. Concepts of specifications and its purposes
• Specification – "general statement of the work to be performed, a
description of the materials, the quality required, and the class of
workmanship to be performed, with definite limits as to what test must be
made in order to determine compliance with the requirements of the
contract, or what defects would be sufficient cause for rejection.“ (J. Tucker)
• It is an integral part of a contract by incorporation, reference or physical
incorporation. Even voluminous documents must be integrated with the
contract to avoid ambiguity. These can be incorporated by reference—
making a written document a part of another by referring to the first
document in such a way as to adopt its provisions, making them integral
parts of the second document. Use annexes to attach documents, e.g.,
Annex "A", Annex "B", etc for simplicity and convenience.
• Purposes of specifications. Primarily, to give contractor clear and complete
knowledge of the work he is going to perform, the materials he is going to
furnish and to enable him to make an accurate estimate in advance so that he
could hand-in an intelligent bid.
• Other purposes include: a) to augment and amplify the plans and the
contract by enumerating and describing in detail every item within the scope
of its performance; b) in competitive bidding, to furnish a single definite and
established basis of competition; and c) to serve as guidelines for engineers,
architects, draftsmen, and foremen engaged in prosecuting (follow till the
end), supervising, or inspecting the work.
• Specification writing as an art. Writer must have sufficient experience and
knowledge on this field. He must be armed with broad and sufficient know-
how on the different aspects of construction. “As ideas and methods change
and improve as a result of experience, so specifications should be changed
to keep abreast of the times."
• True economy in specification. Engineer must devise a specification
"designed to set the contractor guessing at the engineer's meaning."
Purposely, the engineer writes his specification to fit not the honest and
reputable contractor but to fit the dishonest and crooked contractor. If
specification leaves the engineer unlimited discretion as to accepting the
work, he could better control the sharp contractor who wants to take unfair
advantage of every loophole.
• Qualifications of a specification writer.
• He must be mature, with practical experience, and with updated ideas—
latest or modem methods and materials to be injected in the specification.
• He must have broad engineering background to comprehend present and
future technological advances; an advanced training in the branch of
engineering he would like to excel. Knowledge of law is significant in
specification writing; specification is an integral part of a construction
contract.
• Engineer's task: To prevent litigation.
• In the preparation of specification, his primary task is to avoid litigation.
Note that prosecuting a lawsuit is very uneconomic. Thus, specifications
must be written clearly without ambiguities—possible source of lawsuit. The
engineer-writer must exercise prudence in writing specifications.
• Essential requisites in preparing specifications.

• 1) Technical adequacy.
• a) General provisions relate to legal and administrative matters—
interpretation, liabilities, responsibilities, rights etc.
• b) Technical sections – materials involved, physical and chemical
characteristics, peculiar suitabilities and adaptabilities; construction
procedure, i.e., safeguards in such procedures. Engineer-writer must have
extensive technical knowledge in every phase of construction work.
• 2) Definiteness and Certainty. Common fault in specification writing is
indefiniteness of description perhaps due to lack of sufficient knowledge on
the work or materials one is attempting to describe.
a) Ambiguities in specification render it impossible for a contractor to make
an intelligent bid because he does not know what is required of him. This may
be taken advantage by an unscrupulous (devious) contractor for the
ambiguity provides him opportunity to demand extra payment or to justify the
use of inferior materials.
b) Ambiguity allows possibility of giving favorite contractors “inside
information” on real intent/meaning of requirements.
c) It may brand the engineer as ignorant of basic requirements which will
give the "crooked" contractor a chance “to bluff and bulldoze” his way into
easing up or lowering of standards..
• 2) Definiteness and Certainty.
• Basic rules to achieve clarity and definiteness in writing specification:

a) Avoid long and cumbersome sentences. Each sentence should express
one thought only.
b) Never attempt to cover more than one item, requirement or stipulation in
a single clause or paragraph. If what was described is the size and character
of the stone, you can segregate them under different headings, such as: i.)
size of stone; ii.) character of the stone.
c) Avoid verbosity and repetitious use of synonyms, e.g., “the material shall
be dense, compact, durable, stable.”
d) Avoid conflict, uncertainty, and confusion by carefully outlining the set of
specifications before being placed in final form (i.e., being redundant)
• Basic rules to achieve clarity and definiteness in writing specification:
e) Do not use a word or phrase whose meaning is not absolutely clear. Ex:
"holiday" means bare or uncovered spot.
f) Avoid ambiguity by defining completely all terms. Ex: Thirty days may
mean “thirty working days."
i) Do not "show off" or "unduly original" in style and expression. Adopt the
methods of expression which have been tested by time and commonly used
in the profession.

• 3) Be just and equitable in application and purpose. Not discriminatory to
the disadvantage of any contractor. Must not play favorites, i.e., a violation of
the rules of fair play, and decency.

• 4) Economical in its operation. The methods of introducing economy in a set
of specifications are:
a) eliminating extravagant or unnecessary exacting requirements, without
sacrificing quality and
b) removing hazard and uncertainty whenever possible, i.e., "specification
guaranties" which would be advantageous to successful bidder-contractor.
• 5) Legally enforceable with a minimum of friction and misunderstanding.
Specifications prepared with regard to legal requirements may seldom be
voidable or unenforceable; a need for specification-writer to have some legal
background. But in case of ambiguity, the rules on interpretation (Law on
Contracts) shall be consulted.
• Separate Documents Incorporated by Reference
• 1) Advertisement for bids – a procedure whereby the proposed letting
(allowing someone to use one's house or land in exchange for money) is brought to the
attention of prospective bidders and interested parties—contractors and
manufacturers; published in newspapers of general circulation. Publication
is a statutory mandate especially if it’s a government project; it’s also one of
the documents permanently included in the contract document proper.
• Advertisement for bids should state the following:
a) time and place for receiving bids; b) particular party, firm, corporation or
public body by whom they are to be received; c) character and extent of
work: d) location of plans and specifications so bidders may examine them;
e) party or official to whom the request for bidding plans and specifications
should be addressed; f) charges for plans, specifications and proposal forms;
g) data as to prequalification of bidders; h) other data to guide prospective
bidders and interested parties.
• 2) Instructions to bidders – to guide prospective bidders and interested
parties in the preparation of requirements affecting the submission of
proposals and bids, without which interested parties may not make and
submit intelligent bids.
• These instructions include: a) description of work; b) time and place of
receiving bids; c) instructions on receiving proposals; d) information
regarding the proposal guaranty required; e) information regarding the
qualifications of bidders; f) information on the type and amount of guaranty
required; g) right of the owner to reject proposals; and h) other necessary
information
• 3) Proposal. Prospective bidder makes a proposal in the form of a "formal
offer" to perform the work at the price he quotes.
• A Proposal may include: a) names of all the persons or parties making the
proposal; b) proposal is made without collusion; c) bidder has carefully
examined all the plans and specifications and that he submits his proposal in
accordance therewith.
• 4) Standard specifications. This is composed of: a) General provisions -
concerned with legal relationships and responsibilities, and all other matters
relating to administrative and legal import. b)Technical section – concerned
with the provisions on i.) testing and selection of needed materials; ii.)
prosecution of construction itself, and iii.) requirements necessary for
completion of work.
• 5) Plans – take the form of drawings, reproduction of drawings, details of
construction, sketches, and others submitted by the contractor.
• 6) Contract proper – official document of agreement signed by the
contracting parties.
• 7) Performance (completion) bond – given to ensure public authority that
the contract once awarded will be completed as awarded within fixed period
of time. It guarantees that contractor will perform contract and guarantees
against breach of contract.

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TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES VISAYAS

Capt. Sabi St., City of Talisay, Negros Occidental

LEARNING MODULE (Wk 12)

CLSE: Contracts, Laws,

b) Defect arises from incapacity or b) basis is public policy

e) Defenses available only to parties e) Defenses are available to

• Essential requisites in preparing specifications.

• Basic rules to achieve clarity and definiteness in writing specification:

• Essential requisites in preparing specifications.

• Essential requisites in preparing specifications.

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