CONTRACTS
ASUAR, BRYAN JERICK L.
BALINGIT, PHILIP M.
DIMAPINGUN, ANGELA C.
MACASERO, ORLIE ORLAN D.
MONTES, MEL FRANCIS C.
OUTLINE OF THE REPORTING
A. ELEMENTS OF CONTRACTS
1. DEFINITIONS & ESSENTIALS
2. CLASSIFICATION OF CONTRACTS
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AS TO ORIGIN
AS TO PARTICIPANTS
AS TO OBLIGATIONS
AS TO COMPLETION STATUS
AS TO FORM
AS TO LEGAL STATUS
B. KINDS OF CONTRACTS IN CIVIL
ENGINEERING WORKS
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DIRECT EMPLOYMENT
LUMP SUM CONTRACT
COST PLUS CERTAIN PERCENTAGE
COST PLUS FIXED AMOUNT
COST PLUS VARIABLE AMOUNT
SUBCONTRACTING
DEFINTIONS AND
ESSENTIALS
CIVIL CODE OF THE PHILIPPINES
REPUBLIC ACT NO 386
JUNE 18, 1949
BOOK 4
TITLE II
ART 1305 – ART 1422
TITLE II. CONTRACTS
CHAP 1: GENERAL PROVISIONS
CHAP 2: ESSENTIAL REQUISITES OF CONTRACTS
SECTION 1 CONSENT
SECTION 2 OBJECT OF CONTRACTS
SECTION 3 CAUSE OF CONTRACTS
CHAP 3: FORM OF CONTRACTS
CHAP 4: REFORMATION OF INSTRUMENTS
CHAP 5: INTERPRETATION OF CONTRACTS
CHAP 6: RESCISSIBLE CONTRACTS
CHAP 7: VOIDABLE CONTRACTS
CHAP 8: UNEFORCEABLE CONTRACTS
CHAP 9: VOID AND INEXISTENT CONTRACTS
CHAPTER 1
GENERAL PROVISIONS

ART 1305

A contract is a meeting of minds between two
persons whereby one binds himself, with respect
to the other, to give something or to render some
service.
Comes from the Latin “contractus” and from the French “contract” is “a
juridical convention manisfested in legal form, by virtue of which , one or
more persons (or parties) bind themselves in favor of another or others, or
reciprocally, to the fullfillment of a prestation to give, to do or not to do” (4
Sanchez Roman 148-149)
It is the agreement of two or more persons (or parties) for the purpose of
creating, modifying, extinguishing a juridical relation between them (Art
1321, Italian Civil Code; 2 Castan 184)
DISCUSSIONS:
1. ELEMENTS OF CONTRACTS
A. ESSENTIAL ELEMENTS
Without them a contract cannot exist
B. NATURAL ELEMENTS
Those found in certain contracts presumed to exist
C. ACCIDENTAL ELEMENTS
Various particular stipulations that may agreed upon by the
contracting parties in a contract, they may be present or absent in
the contract itself.
2. CLASSIFICATIONS OF CONTRACTS
A. ACCORDING TO PERFECTION OR FORMATION
1. Consensual -Perfected by mere consent
2. Real -Perfected by delivery
3. Formal or Solemn -Those where special formalities are essential
before the contract may be perfected
B. ACCORDING TO CAUSE
1. Onerous – Where there is an interchange of equivalent
valuable considerations.
2. Gratuitous or Lucrative – This is FREE, thus one party
receives no equivalent prestation except a feeling that
one has been generous or liberal.
3. Remunerative – one where one prestation is given for a
benefit or service that had been rendered previously.
C. ACCORDING TO PARTIES OBLIGATED
1. Unilateral – Where only one of the parties has an obligation
2. Bilateral – both parties are required to render reciprocal
prestations
D. ACCORDING TO THE RISK OF FULFILLMENT
1. Commutative – Parties contemplate a real fulfillment,
therefore equivalent values are given.
2. Aleatory – here the fulfillment is dependent upon
chance, thus the values vary because of the risk or
chance.
E. ACCORDING TO THE TIME OF FULFILLMENT
1. Executed – One completed at the time that the contract
is entered into, that is, the obligations are
complied with at this time.
2. Executory – One where the prestations are to be
complied with at some future time.
F. ACCORDING TO SUBJECT MATTER
1. Contracts involving things
2. Contracts involving rights or credits
3. Contracts involving services
G. ACCORDING TO OBLIGATION IMPOSED BY THE LAW
1. Ordinary – e.g. sale, law consider it as ordinary contract
2. Institutional – e.g. marriage
H. ACCORDING TO THE EVIDENCE REQUIRED FOR ITS PROOF
1. Those requiring merely oral evidence
2. Those requiring written proof
I. ACCORDING TO THE NUMBER OF PERSONS WHO PARTICPATED
IN THE DRAFTING OF THE CONTRACT
1. Ordinary – e.g. ordinary sale
2. Contract of Adhesion – e.g. real state company.
J. ACCORDING TO THE NATURE OF THE CONTRACT
1. PERSONAL
2. IMPERSONAL
Basic Principles or Characteristics of a Contract
1. Freedom to Stipulate
2. Obligatory Force and Compliance in good
faith
3. Perfection by mere consent
4. Both parties are mutually bound
5. Relativity
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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.
-Must not be contrary to mandatory or prohibitive laws
-Must respect the law for the law forms part of the contract
-Must deal with right or wrong, and with human conscience
-Good customs are those that have received for a period of time practical
and social confirmation.
-Must not be against public weal or public safety
-It must not injure public good or undermine security of individual rights

Art. 1307. Innominate contracts shall be
regulated by the stipulations of the parties, by
the provisions of Titles I and II of this Book, by
the rules governing the most analogous
nominate contracts, and by the customs of
the place.
4 KINDS OF INNOMINATE CONTRACTS
1 .DO UT DES
(I GIVE THAT YOU MAY GIVE)
2. DO UT FACIAS
(I GIVE THAT YOU MAY DO)
3. FACIO ET DES
(I DO THAT YOU MAY GIVE)
4. FACIO UT FACIAS (I DO THAT YOU MAY DO)
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Art. 1308. The contract must bind both
contracting parties; its validity or
compliance cannot be left to the will of
one of them.
-It stresses the mutuality of contracts, that is both parties
are bound.
-A party cannot revoke or renounce a contract without
the consent of the other, nor it can have it set aside on
the ground that he had made a bad bargain
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Art. 1309. The determination of the
performance may be left to a third person,
whose decision shall not be binding until
it has been made known to both
contracting parties.
-Decisions binds the parties only after it is
made known to both parties.
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Art. 1311. Contracts take effect only
between the parties, their assigns and
heirs, except in case where the rights and
obligations arising from the contract are
not transmissible by their nature, or by
stipulation or by provision of law. The heir
is not liable beyond the value of the
property he received from the decedent.
This article stresses the principle of RELATIVITY, that is, contracts
are generally effective only between the PARTIES, their
ASSIGNS, and their HEIRS
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EXEMPTIONS TO ART 1311
Art. 1312. In contracts creating real rights,
third persons who come into possession of
the object of the contract are bound thereby,
subject to the provisions of the Mortgage Law
and the Land Registration Laws.
Art. 1313. Creditors are protected in cases
of contracts intended to defraud them.
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Art. 1314. Any third person who induces
another to violate his contract shall be
liable for damages to the other contracting
party.
This article gives an instance when a stranger to a contract
can be sued in view of his unwarranted interference. Who
ever is injured may properly sue for damages.

Art. 1315. 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.
This article stresses the CONSENSUALTIY OF CONTRACTS (or
perfection by mere consent.)
How contracts are perfected?
1. Consensual Contracts – by mere consent
2. Real Contracts – perfected by delivery
3. Formal or Solemn Contracts – here a
special form is required for perfection
(example a simple donation or real property
to be perfected).
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Art. 1316. Real contracts, such as deposit,
pledge and Commodatum, are not perfected
until the delivery of the object of the obligation.
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Art. 1317. No one may contract in the name of
another without being authorized by the latter,
or unless he has by law a right to represent
him.
If a person wants to contract in the name of another:
1.
He must be duly authorized (expressly or implied)
2.
OR he must have by law a right to represent him (like the gaurdian, or
the administrator)
3.
Or the contract must be subsequently RATIFIED (expressly, impliedly,
by word or deed)
CHAPTER 2
ESSENTIAL REQUISITES OF
CONTRACTS
Art. 1318. There is no contract unless the
following requisites concur:
(1)Consent of the contracting parties;
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(2) Object certain which is the subject matter of
the contract;
(3) Cause of the obligation which is established.
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Consent presupposses legal capacity
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If there is absolutely no consent, there is
NO contract!
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If there is a vice of consent such as error,
fraud, or undue influence, etc., the contract is
not void, it is merely voidable
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SECTION 1
Art. 1319.Consent is manifested by the meeting
of the offer and the acceptance upon the thing
and the cause which are to constitute the
contract. The offer must be certain and the
acceptance absolute. A qualified acceptance
constitutes a counter-offer.
Acceptance made by a letter or telegram does not
bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is
presumed to have been entered into in the place
where the offer was made.
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1.
2.
3.
4.
5.
Requisites of Consent
There must be two or more parties
The parties must be capable or capacitated
There must be no vitiation of consent (there
must be no fraud, intimidation, otherwise the
contract is voidable)
There must be no conflict between what is
expressly declared and what was intended
The intent must be declared properly (that
is, whatever legal formalities required must
be complied with)
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Art. 1320. An acceptance may be express or
implied.
Art. 1321. The person making the offer may fix
the time, place, and manner of acceptance, all of
which must be complied with.
Art. 1322. An offer made through an agent is
accepted from the time acceptance is
communicated to him.
Art. 1323. An offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed.
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Art. 1324. When the offerer has allowed
the offeree a certain period to accept, the
offer may be withdrawn at any time before
acceptance by communicating such
withdrawal, except when the option is
founded upon a consideration, as
something paid or promised.
Art. 1325. Unless it appears otherwise,
business advertisements of things for sale
are not definite offers, but mere invitations
to make an offer.
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Art. 1326. Advertisements for bidders are
simply invitations to make proposals,
and the advertiser is not bound to accept
the highest or lowest bidder, unless the
contrary appears.
Art. 1327. The following cannot give
consent to a contract:
(1)Unemancipated minors;
(2) Insane or demented persons, and deafmutes who do not know how to write.
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Art. 1328. Contracts entered into during a
lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a
hypnotic spell are voidable.
Art. 1329. The incapacity declared in
Article 1327 is subject to the modifications
determined by law, and is understood to
be without prejudice to special
disqualifications established in the laws.
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Art. 1330. A contract where consent is
given through mistake, violence,
intimidation, undue influence, or fraud is
voidable.
Art. 1331. In order that mistake may
invalidate consent, it should refer to the
substance of the thing which is the object
of the contract, or to those conditions
which have principally moved one or both
parties to enter into the contract.
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Art. 1332. When one of the parties is
unable to read, or if the contract is in a
language not understood by him, and
mistake or fraud is alleged, the person
enforcing the contract must show that the
terms thereof have been fully explained to
the former.
Art. 1333. There is no mistake if the party
alleging it knew the doubt, contingency or
risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may
vitiate consent
 Art. 1335. There is violence when in order to wrest consent,
serious or irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent.
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Art. 1336. Violence or intimidation shall annul
the obligation, although it may have been
employed by a third person who did not take
part in the contract.
Art. 1337. There is undue influence when a
person takes improper advantage of his power
over the will of another, depriving the latter of a
reasonable freedom of choice. The following
circumstances shall be considered: the
confidential, family, spiritual and other relations
between the parties, or the fact that the person
alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant
or in financial distress.
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Art. 1338. There is fraud when, through
insidious words or machinations of one of
the contracting parties, the other is
induced to enter into a contract which,
without them, he would not have agreed
to.
Art. 1339. Failure to disclose facts, when
there is a duty to reveal them, as when the
parties are bound by confidential
relations, constitutes fraud.
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Art. 1341. A mere expression of an opinion does
not signify fraud, unless made by an expert and
the other party has relied on the former's special
knowledge.
Art. 1342. Misrepresentation by a third person
does not vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith
is not fraudulent but may constitute error.
Art. 1344. In order that fraud may make a
contract voidable, it should be serious and
should not have been employed by both
contracting parties.
Incidental fraud only obliges the person
employing it to pay damages.
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Art. 1345. Simulation of a contract may be absolute
or relative. The former takes place when the
parties do not intend to be bound at all; the
latter, when the parties conceal their true
agreement.
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Art. 1346. An absolutely simulated or
fictitious contract is void. A relative
simulation, when it does not prejudice a
third person and is not intended for any
purpose contrary to law, morals, good
customs, public order or public policy
binds the parties to their real agreement.
4 KINDS OF DEFECTIVE
CONTRACT
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The rescissible contract is valid until
rescinded; there is a sort of extrinsic defect
consisting of an economic damage or
lesion
The voidable contract is valid till
annulled. It can be annulled. It cannot be
annulled however of there has been
ratification. The defect is more or less
intrinsic, as in the case of vitiated consent.
The unenforceable contract cannot be sued
upon or enforced, unless it is ratified. In a
way, it may be considered as a validable
transaction, that is, it has no effect now, but it
may be effective upon ratification.
(note: on the other hand, a voidable contract
has effect now, but it may be invalidated,
hence it is deemed valid until annulled.)
 The void contract is one that has no effect at
all; it cannot be ratified or validated.
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Rescission is a remedy granted by law to the
contracting parties both to contracting parties
and to the third persons in order to secure
reparation of damages caused by them by a
contract.
Art. 1381. The following contracts are rescissible:
(1)Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject
to rescission.
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Voidable Contracts
Art. 1390. The following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
(1)Those where one of the parties is incapable of giving
consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a
proper action in court. They are susceptible of
ratification.
RESCISSION
The basis here is lesion
(damage)
ANNULMENT
The basis here is vitiated
consent or incapacity to
consent
The defect here is external The defect here is intrinsic
or extrinsic
(meeting of minds)
This is a remedy
Private interest governs
Equity predominates
Plaintiff may be a party or
3rd person
To prevent rescission
ratification is not required
This is a sanction
Public interest governs
Law predominates
Plaintiff must be a party to
the contract
To prevent annulment,
ratification is required
UNENFORCEABLE CONTRACT
Art. 1403. The following contracts are unenforceable, unless
they are ratified:
(1) 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;
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
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(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage
of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer
accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the
time some part of the purchase money; but when a sale is made
by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a
contract.
VOID & INEXISTENT
 CONTRACTS
VOID AND INEXISTENT CONTRACTS

Art. 1409. The following contracts are inexistent and void
from the beginning:
(1)
Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of
the transaction;
(4) Those whose object is outside the commerce of men;
5) Those which contemplate an impossible
service;
(6) Those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained;
(7) Those 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.
Classification of
Contracts

As to Completion Status
 As to Form
 As to Legal Status
As to Completion Status
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A. Executory
- An obligation is assumed by one or both parties
to do or refrain from doing certain acts at some
time in the future.
Example: Orlie agrees to sell his collection of VCDs to Mel
and Mel agrees to pay Orlie one box of Sky flakes worth P
200 two days after when the exchange takes place.
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B. Executed
- Everything is done at the time of making the
contract and no obligation for future acts is
assumed by either party.
Example: Orlie agrees to sell his collection of VCDs to Mel. Mel
immediately paid Orlie one box of Sky flakes worth P 200 and
Orlie gave his collection to Mel.
As to Form
A.
B.
C.
Contract Under Seal
Contract of Record
Simple or Parol Contract
1.
2.
3.
Contracts in Specified form
Contracts in Writing
Contracts without Specified form or Writing
As to Form
A.
Contract Under Seal
- Sealing wax on the document
and making a distinctive mark
As to Form
Contract of Record
- Are contracts which exist as a
consequence of court judgments
Example:
Mr. Bryan filled a case against the City of Tacloban for dumping
garbage on his land. The City of Tacloban got a court order to pay
Bryan P2,000,000 for the damages caused on his property.
As to Form
Simple or Parol Contract
1. Contracts in Specified form
- Promissory notes, bills of exchange.
2. Contracts in Writing
- Insurance policies, membership, last will, etc.
3. Contracts without Specified form or Writing
- Oral contracts
As to Legal Status
A.
B.
C.
D.
Valid – is one which is in full force enforceable
by court action.
Void – has no status in law and is therefore not
enforceable by court action.
Voidable – a contract w/c is binding to one party
but may be binding or nonbinding to the other
party.
Unenforceable – is valid in all respect but it is
unenforceable through court action.
CLASSIFICATION
OF
CONTRACTS
AS TO ORIGIN

EXPRESS CONTRACT
- is a bilateral or multilateral contract in
which the promises and assent are
expressed in speech or writing.

Example:
Orlie agrees to grade a building lot to
Bryan, and Bryan agrees to pay a sum of
Php 20000 when the work is completed.

IMPLIED CONTRACT
- is a unilateral contract where either the
act of acceptance or both the act of
acceptance and the promise are inferred
as a matter of fact from the conduct or
acts of the parties.
Example:
Angela takes her truck to a garage
operated by Philip and asks him to find
out what is wrong with the engine and fix
it. On examination, Philip finds that the
truck has a cracked cylinder block and a
badly worn crankshaft. He replaces the
engine with a new one, and Angela must
pay a reasonable price for the work.


QUASI CONTRACT
-is not, strictly speaking, a contract but a
legal obligation which is similar to a
contract and which is created by the
implication of law.

Example:
An architect, A, is retained by B to prepare
plans for the residence which B expects to
build. The first set of plans shows a house
which is much too costly for B to build, so A
prepares a second set of plans without further
charge which B uses in building his home. In
the meantime, B has shown the first set of
plans to a friend C, who has had them copied
and who builds a house according to the first
set of plans.
AS TO PARTICIPANTS

TWO-PARTY CONTRACT
-is the most common type on which only
two parties are involved.

JOINT CONTRACT
- is one which two or more parties merge,
to a greater or less extent, their interests
to enter into a contract with another party
or parties.

SEVERAL CONTRACT
- is one in which two or more persons
enter into a contract as promisors or
promisees but keep their liability more or
less separate.

JOINT AND SEVERAL CONTRACT
-has some of the nature of each of the
two preceding type.

THIRD-PARTY BENEFICIARY
CONTRACT
-is one in which two parties enter into a
contract for the protection of the interests
of a third person who is not a party to the
contract.
AS TO OBLIGATION STATUS

BILATERAL CONTRACT
-is one in which one party agrees to
perform or refrain from performing some
certain acts in return for which the other
party agrees to perform or refrain from
performing certain acts.

UNILATERAL CONTRACT
-is one in which there is a promise by
one party to perform certain acts
provided the other party does certain
things,
the
acceptance
to
be
accomplished by the act.
Types of Contracts
• Contract at a Fixed Price
• Contracts for Cost-plus a Percentage
• Construction by Direct Employment
• Contract at a Fixed Price
- The oldest and most common method
of letting work under contract is by
receiving bids with a fixed prices. These
may be either Lump Sums or Unit Prices.
- Contracting on a basis of either a
Lump Sum or of Unit Prices is subject to
the objection that the interests of the
contractor and of the owner become at
once antagonistic.
Why antagonistic?
It is the owner’s purpose to secure
the best quality of work and material at
the prices paid, while the natural
purpose of the contractor is to do the
work as cheaply as possible and to
economize in both the character of
material and expense of labor, so far
as the conditions permit.
- This contract should be let only to men
with experience and standing.
WHY?
ADVANTAGE:
It has advantage to the owner in that,
while the actual cost may be high, a
definite limit is fixed; the cost is known
before the work is begun; and if the
price is too high, the work need not to
be undertaken.
What if the price bid is too low?
- when the price bid is too low to
cover the cost of the work, the problem
of securing proper construction at an
unfair price arises. Under such
conditions, some other form of
contract becomes desirable.
BACK
• Contracts for Cost-plus a
Percentage
- The most common method has been
to pay the contractor the actual cost of
the construction work with a specified
percentage thereof as compensation for
his overhead expenses, personal
services and profits.
ADVANTAGE:
The risk of hazard of construction is
entirely removed from the contractor, the
owner can secure his services with the
advantages of his skill and experience for
the lowest practicable amount. While the
owner is obliged to assume the hazards
or contingencies of construction, he will
pay only such costs that are actually
incurred and for which he should
equitably pay.
DISADVANTAGE:
It is almost or quite impossible to secure
efficient working conditions under the costplus-percentage arrangement. The foremen
and laborers, appreciating the fact that the
contractor to whom they are directly
responsible is not dependent on their
greatest efforts for his returns, will almost
uniformly reduce their efforts, with a
resulting increase in cost and perhaps a
detriment to the quality of work.
BACK
• Construction by Direct
Employment
- The construction of engineering works by
direct employment of an organization
independent of any contractor eliminates
certain difficulties often no less serious.
- The responsibility for the construction and
for the cost of the work is placed on an
organization which the owner or governmental
body must create for this purpose, and the
results will depend largely on the efficiency of
the organization.
ADVANTAGE:
This centers around the flexibility of the
operation and the control which the owner
has over the operation. When required,
the construction may be started before the
plans and specifications have been
completed in all their details, and thereby
a delay of many months in the starting and
completion of the construction is
sometimes avoided.
DISADVANTAGE:
This centers around the ability of the
owner to assemble and retain an
organization with the skill and drive
comparable to that of a good contractor.
Good superintendents and foremen will
not normal times take temporary jobs
unless the rate of pay very high. Good
supervision is the key to good probability
of securing the desired results without
good supervision is remote.
THANK
YOU!
Because if a contractor is a man of
character, experience and reputation, and if
his proposal has been based on definite
and clear plans and specifications, then it
can be sure that his agreed price will
contain a sufficient profit to assure the
execution of the work in a satisfactory
manner. If, however, he is unreliable or
inexperienced, he may take the work at
such a price as to assure a loss if he fulfills
his contract. Then this will possibly involve
constant trouble or poor results.
BACK
Kinds of Contract in Civil Engineering Works
Cost Plus Fixed Amount
- Contractor cannot profit by any increase of cost
- contractor can secure the greatest returns to
himself by the least expenditure of time and
money for the owner
- Does not eliminate the inefficient methods and
unsatisfactory conditions
Kinds of Contract in Civil Engineering Works
Cost Plus Variable Amount
- Contractor undertakes to complete the work for a fixed
sum and in definite time
-An advantage to the owner since he can determine the
final cost almost as closely as under lump-sum contract
- If cost of work is less than the estimate, the owner can
save only half of the extra, the other half is given to the
contractor
- If cost is more than that of the estimate, half is paid by
the owner while the other half is deducted to the
contractor’s premium
Sub-contracting
1. WHAT IS CONTRACTING AND SUBCONTRACTING?
There is contracting or subcontracting when an employer,
referred to as the principal, farms out the performance of a
part of its business to another, referred to as the contractor
or subcontractor. For the purpose of undertaking the
principal's business that is farmed out, the contractor or
subcontractor then employs its own employees.
Contracting and subcontracting are synonymous under
Philippine labor law. The term that is more commonly used
is subcontracting.
Sub-contracting
2. IN THE EMPLOYMENT OF WORKERS, IS THERE A
DIFFERENCE BETWEEN AN ORDINARY EMPLOYER-EMPLOYEE
RELATIONSHIP AND SUBCONTRACTING?
Yes.
In an ordinary employer-employee relationship, there are only two
parties involved - the employer and the employee. This relationship is
established through a four-fold test, under which the employer:
a. Directly exercises control and supervision over the employee not only
as to the results of the work but also as to the means employed to attain
this result;
b. Has the power to select and hire the employee;
c. Has the obligation to pay the employees his or her wages and other
benefits.
Sub-contracting
2. IN THE EMPLOYMENT OF WORKERS, IS THERE A
DIFFERENCE BETWEEN AN ORDINARY EMPLOYER-EMPLOYEE
RELATIONSHIP AND SUBCONTRACTING?
Yes.
The power of control is the most important factor in
determining the existence of an employer-employee
relationship. The employer need not actually exercise this
power. It is enough that the employer retains the right to
exercise this power. It is enough that the employer retains the
right to exercise it as it may deem necessary or appropriate.
Sub-contracting
2. IN THE EMPLOYMENT OF WORKERS, IS THERE A
DIFFERENCE BETWEEN AN ORDINARY EMPLOYER-EMPLOYEE
RELATIONSHIP AND SUBCONTRACTING?
Yes.
In subcontracting, there are three parties involved:
a. The principal which decides to farm out a job or service to a
subcontractor;
b. The subcontractor which has the capacity to independently undertake
the performance of the job or service; and
c. The employees engaged by the subcontractor to accomplish the job or
service.
In subcontracting, the four-fold test of employer-employee relationship
should be satisfied by the subcontractor in relation to the employees it
engages to accomplish the subcontracted job or service. In such cases, the
subcontractor is also referred to as independent contractor.
Sub-contracting
3. IS THERE A DIFFERENCE BETWEEN A SUBCONTRACTOR AND
A PRIVATE RECRUITMENT AND PLACEMENT AGENCY (PRPA)?
Yes.
A subcontractor directly undertakes a specific job or service for a
principal, and for this purpose, employs its own workers. A PRPA cannot
be a subcontractor. It simply recruits workers for the purpose of placing
them with another employer so that the workers recruited will not
become the PRPA's employees.
A subcontractor is governed by the laws and rules enumerated under
Question # 4 below. A PRPA is governed by Articles 25 to 39 of the Labor
Code and the rules implementing these articles.
A subcontractor does not need authority from the Department of Labor
and Employment (DOLE) to undertake a subcontracted job or service. A
PRPA needs an authority or license from DOLE to legally undertake a
recruitment and placement activities.
Sub-contracting
4. WHAT LAW OR RULES GOVERN SUBCONTRACTING?
The basic law governing subcontracting is the Labor Code, particularly
Articles 106 to 109. These provisions prescribe the conditions for
regulating subcontracting and the rights and obligations of parties to this
arrangement. There was also a set of rules implementing Articles 106 to
109, known as Department Order No. 10, issued by DOLE in 1997.
However, D. O. No. 10 was revoked by DOLE on 08 May 2001 through
another order, D. O. No. 3, Series of 2001. D. O. No. 3 took effect on 29
May 2001.
With the revocation of D. O. No. 10, the following laws and rules will
apply in addition to Articles 106 to 109 of the Labor Code:
a. Article 248 (c) which disallows contracting out of services or functions
being performed by union members when such will interfere with,
restrain or coerce employees in the exercise of their rights to selforganization;
b. Article 280. which classifies employees into regular, project or seasonal
employees;
Sub-contracting
4. WHAT LAW OR RULES GOVERN
SUBCONTRACTING?
c. Article 2180 of the Civil Code, under which the principal,
in a civil suit for damages instituted by an injured person,
can be held liable for any negligent acts of the employees of a
labor-only contractor;
d. Republic Act No. 5487 and its implementing rules, which
regulate the operation of security agencies;
e. Jurisprudence interpreting the foregoing laws;
f. D. O. No. 3;
g. D. O. No. 19, Series of 1993, for subcontracting
arrangements in the construction industry; and
h. Contractual stipulations provided these are not in conflict
with Labor Code provisions, jurisprudence, and D. O. Nos. 3
Sub-contracting
7. WHAT IS LEGITIMATE SUBCONTRACTING?
Contracting shall be legitimate if the following conditions concur:
a. the contractor or subcontractor carries on a distinct and independent
business and undertakes to perform the job, work or service on its own
account and under its own responsibility, according to its own manner
and method, and free from the control and direction of the principal in
all matters connected with the performance of the work except as to the
results thereof;
b. the contractor or subcontractor has substantial capital or investment;
c. The agreement between the principal and the contractor or
subcontractor assures the contractual employees entitlement to all
occupational safety and health standards, free exercise of the right to self
organization, security of tenure, and social and welfare benefits.
Sub-contracting
8. WHAT IS SUBSTANTIAL CAPITAL? IS SUBSTANTIAL CAPITAL
SUFFICIENT TO ESTABLISH LEGITIMATE SUBCONTRACTING?
Substantial capital refers to such investment, whether in the form of
money, facilities, tools, equipment, machineries, work premises, or
subscribed capital stock that would indicate the subcontractor's capacity
to undertake the subcontracted work or service independently. For
example, a subcontractor with a capital stock of P1 Million which is fully
subscribed and paid for has been deemed by the Supreme Court to be a
highly capitalized venture which satisfies the requirement of substantial
capital.
Where a subcontractor is highly capitalized, the Supreme Court has held
that it need not show evidence that it has investment in the form of tools,
equipment, machineries, work premises, among others, to be considered
legitimate. However, it is still necessary for it to show that it has the
capacity to be an independent contractor, That is, it can undertake the
performance of the contract according to its own manner and method,
free from the supervision of the principal in all matters except as to the
results of the work.
Sub-contracting
9. IS LEGITIMATE SUBCONTRACTING DIFFERENT FROM
LABOR-ONLY CONTRACTING? HOW IS LABOR-ONLY
CONTRACTING DEFINED?
Yes, legitimate subcontracting is different from labor-only contracting
because the former is allowed and the latter is illegal and prohibited.
Section 2 of D. O. No. 3 states that there is labor-only contracting where
the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and the
following elements are present:
a. The contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work or service under its own
account and responsibility; and
b. The employees recruited, supplied or placed by such contractor or
subcontractors are performing activities directly related to the main
business of the principal.
Sub-contracting
10. WHAT IS THE BASIS OF THE STATE IN PROHIBITING LABORONLY CONTRACTING? WHAT IS THE OBJECTIVE OF THE
PROHIBITION?
The bases of the State in prohibiting labor-only contracting are:
a. The Constitution, which mandates that the State shall protect labor
and promote its welfare, and shall guarantee basic labor rights including
just and humane terms and conditions of employment and the right to
self-organization.
b. Article 106 of the Labor Code, which allows the Secretary of Labor to
distinguish between labor-only contracting and job contracting to
prevent any violation or circumvention of the Labor Code.
Sub-contracting
10. WHAT IS THE BASIS OF THE STATE IN PROHIBITING LABORONLY CONTRACTING? WHAT IS THE OBJECTIVE OF THE
PROHIBITION?
The objective of the State in prohibiting labor-only contracting is to
ensure that labor laws are followed and to prevent exploitation of
workers. A labor-only contractor is one which presents itself as an
employer even if it does not have capital to run a business or capacity to
ensure that its workers are paid their wages and other benefits as
prescribed by law. As such, it cannot independently undertake to perform
a subcontracted job or service. To allow a labor-only contractor to
operate is to give it an opportunity to circumvent the law and to exploit
workers.
D. O. No. 3 is not the first regulation to prohibit labor-only contracting.
The prohibition was embodied in the original rules implementing Articles
106 to 109 issued right after the Labor Code took effect in 1974. D. O. No.
10 also contained a similar prohibition. D. O. No. 3 merely reiterates the
prohibition
Sub-contracting
14. IF A LEGITIMATE SUBCONTRACTOR CANNOT PAY THE
WAGES OF THE EMPLOYEES IT ENGAGED TO PERFORM THE
JOB OR SERVICE, WILL THE PRINCIPAL AUTOMATICALLY
BECOME THE EMPLOYER OF SUCH EMPLOYEES?
No.
Under Article 106, a principal has two types of liability in relation to the
employees of the subcontractor. The first type of liability is limited, and is
governed by the first two paragraphs of Article 106. Thus, mere inability
of the subcontractor to pay wages will not automatically make the
principal the direct employer. It will only make the principal jointly and
severally liable with the subcontractor for payment of the employees'
wages to the extent of the work performed under the contract.
The second type of liability, which arises from the third and fourth
paragraphs of Article 106, is absolute and direct. This liability arises
when there is labor-only contracting as defined in D. O. No. 3. In such
cases, the principal shall be responsible to the workers in the same
manner and extent as if it directly employed these workers.