Pamantasan ng Lungsod ng Maynila

College of Engineering and Technology

Civil Engineering Department

CIV 0322
CE Laws, Ethics and Contracts

Lecture-4
Introduction to Obligations and Contracts

Dr. J. BERLIN P. JUANZON CE, MBA, MSCM

Learning Objectives
To be able to define “Obligations”
and “Contracts”
To determine valid contracts
To interpret construction
contracts
Obligations
Definition:
Art. 1156. An obligation is a juridical necessity
to give to, do to, or not to do.
Obligations arises from:
Law;
Contracts;
Quasi-contracts;
Acts or omission punished by law; and
Quasi-delicts.
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, wheterh mental

or physical

NOT TO DO- consists in abstaining from some act,

includes “not to give”, both being negative obligations
OBLIGATIONS
By Law
Obligations derived from law are not
presumed.
Governed by the Law itself
Agreement of the party is not necessary
(e.g. Tax payment)
Not presume. Only expressly provided are
enforceable.
OBLIGATIONS
By Contract
Obligations arising from contracts
have that force of law between the
contracting parties and should be
complied in good faith.
Contract
Definition:
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.
Contract
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..
Contract
Art. 1308. The contract must bind
both contracting parties; its validity
or compliance cannot be left to the
will of one of them.
Contract
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.
Valid Contracts
ENFORCEABILITY
The law will enforce the provision of a valid
contract; the law will not intervene to impose
more favourable contract terms
CHANGES
An existing contract can be altered by mutual
agreement, providing it is within the framework of
the existing contract

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 Terms and Conditions of Contracts
Expressed Terms
The conditions which are written in the contract
Implied Terms
Valid conditions which are not explicitly stated
Often rely on established customs and practice
Obvious terms, which should reasonably be
applied
e.g. contract to build staircase implies
conformance to appropriate building code

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 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

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Case Study: Disclaimer Clauses
A contracting firm entered into a contract with an
owner to construct three bridges over a water creek.
During the bidding process, the Contractor made a
cursory inspection of the site, including berms, which
had been constructed by the owner upstream and
down stream of each bridge site.
When contractor commenced work, water leaked
through the berms. Work was delayed and became
more difficult. Contractor sued for compensation.
Is contractor entitled for compensation?
Contract included the following two disclaimer
clauses
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No Damage for Delay
“… the contractor shall not have any
claim for compensation for damages
against the owner for any stoppage or
delay from any cause whatsoever.”

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Examination of Work

“The bidder is required to investigate and satisfy

himself of everything and every condition
affecting the work to be performed and the labour
and material to be provided, and it is mutually
agreed that submission of tender shall be
conclusive evidence that the bidder has made such
an investigation.”

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Question
In general, when a party signs a standard form contract
without reading and understanding its terms,
 
a) The court will reject the contract
b) The court will delete ambiguous terms and then
enforce the contract
c) The court will delete unfair terms and then enforce
the contract
d) TheThecourt
courtwill
willenforce
enforcethe
thecontract
contract
e) The court will impose a penalty on the other party

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CONSTRUCTION CONTRACT
Major clauses in a Construction Contract
CONTRACTING PARTIES
NAME AND LOCATION OF PROJECT
CONTRACT DURATION
CONTRACT AMOUNT
MANNER / TERMS OF PAYMENT
Down payment
Progress Billing
RECOUPMENT OF DOWNPAYMENT (Pro-rated to
Progress Billing)
RETENTION MONEY
LIQUIDATED DAMAGES
Retention is money held by the
Employer/Client as a safeguard against
defects which may subsequently develop
and which the Contractor may fail to
remedy.
Retention is usually set at either 10% of the
value of the works or 5% in the case of some
(usually larger) contracts. This percentage
is then deducted from all the interim
payments made to the main contractor.
 Contract Violation
BREACH OF CONTRACT
This occurs when either party fails to comply with
their respective obligations
Owner’s obligation to pay for work done
Contractor’s duty to perform the work
Any other obligation contained in the contract
document either expressly or implied
Does not enable injured party to avoid their own
obligations

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Remedies for Contract Violation
 DAMAGES
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. 22
Remedies for Contract Violation
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
Liability limiting clauses enforceable

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Liquidated Damages
(Construction Contract)
Liquidated damages are specified daily charges
deducted from moneys 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 LD:
1/10th of 1% of the amount of the
remaining works for every day of delay
beyond the required completion date. 24
Case on Project Delays
A contractor was awarded a contract for a
construction of a 4-storey building in Laguna with a
contract amount of 4,800,000.00 and with duration of
180 calendar days.
During the construction process, the contractor
experienced unforeseeable situation that caused them
delays in construction. At the end of the contract
duration, the contractor only accomplished 88%,
which obliged him to pay liquidated damages as stated
in the contract.
How much LD did the contractor pays the owner if
they only completed the project after 208days?
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 ANSWER
No. of days delay:
 208 – 180 = 28days
Estimated cost of delay per day:
Remaining works to be accomplished at the time of the agreed
duration period = 100-88 = 12%
Amount remaining: 12%(4,800,000) = 576,000.00
1/10th of 1% of the remaining works:
1/10*(.01)*(576,000.00) = Ph 576 per day

Total amount of Liquidated Damages:

28days * Ph 576 / day = Ph 16,128.00

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THANK YOU FOR
LISTENING…
Introduction to Obligations
and Contracts