Module 3 law of contracts


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Module 3 law of contracts

  1. 1. CoE 413 – Contracts, Laws and Ethics Law on Contracts Module 3: Law on ContractsArticle 1156 to 1430 of the New Civil Code – law of obligations and contracts Obligation – Latin word “obligare” meaning to bind. - a juridical necessity to give, to do or not to do. Obligation to give: “A” entered into contract with “B” whereby the former bound himself to deliver to “B” a specific car on June 5, 2005. Obligation to do: “A” and “B” entered into an agreement whereby the former obliged himself to fix the car of “B”. Obligation not to do: “A” and “B” signed a contract whereby the former bound himself with “B” not to construct a fence on a land belonging to the latter for the period of (5) years. 4 (four) Essential Requisites of Obligation: 1. A passive subject –the person who is bound or has the duty to fulfill the obligation, called the debtor or obligor. 2. An active subject – the person who can demand the fulfillment of the object or presentation, called the creditor or obligee. 3. An object or presentation – this is the subject matter of the obligation. It is either the giving of a thing, or the doing, or not the doing of something. 4. A juridical tie, legal tie or the vinculum – it is that which binds the parties to the obligation. It is otherwise known as the efficient cause. Example: “X” promised to design and create a computerized appliance controller system for “Y” for one million pesos by virtue of contract signed by them. Passive subject : “X” Active subject : “Y” Object or presentation : Creation of Computerized appliance controller system Juridical or legal tie : Contract If it was agreed that after the creation: Passive subject : “Y” Active subject : “X”UC-CEA Department of Computer Engineering 14
  2. 2. CoE 413 – Contracts, Laws and Ethics Law on Contracts Sources of Obligations: a. Derived from Law – determined in the Civil Code or in special laws are demandable and shall be regulated by the precepts of the law. Example: Obligation of the spouses to mutually support each other Obligation to pay taxes pursuant to the National Internal Revenue Code b. Derived from Contracts – the force of law between the contracting parties and should be complied with in good faith. The contract must be valid and enforceable and must not be contrary to law, morals, good customs, public order or public policy. Example: 1. “X” agrees to sell his car to “Y” and the latter agrees to buy the car of “X” voluntarily. - The agreement has the force of law. Thus, neither may not violate the terms and conditions of the contract for it is required by the law that the same must be complied with in good faith. 2. “A” agrees with “B” to steal the car of “C” for in consideration of P2,000.00. - This contract is “void ab initio” for it is contrary to law. c. Derived from quasi-contracts – lacks the element of consent, and no formal contract between the parties. However, the law considers them to have entered into an agreement purposely to prevent injustice. 2 (two) kinds of quasi-contracts (a) negotiorum gestio – it is the voluntary management of the property or affairs of another without the knowledge or consent of the latter. Example: “A” went abroad with his family without leaving anybody to look after his house. While abroad, a strong earthquake occurred resulting in the destruction of “A’s” house. Because of the magnanimity of “B”, “A’s” neighbor, the house was repaired with some expenses. In this case, “A” is obliged to reimburse the expenses of “B”. (b) solution indebiti - it is a juridical relation which takes place when something is received when there is no right to demand it, and it was unduly delivered through mistake, giving rise to the obligation to return it. Example: “A” owes “B” the sum of P2,000.00. “A” paid “B” the sum of P3,000.00 not knowing that the former incurred only a debt amounting to P2,000.00. In this example, “B” is duty-bound to return the excess of P1,000.00.UC-CEA Department of Computer Engineering 15
  3. 3. CoE 413 – Contracts, Laws and Ethics Law on Contracts d. Derived from delicts or crimes – person committing a criminal offense is obliged to pay for the injury thus inflicted. Crimes or delicts – acts or omissions punished by law (felony). Example: “A” boloed “B” resulting in the latter’s death. If “A’ is found guilty thereof, he is liable to indemnify the heirs of the deceased. e. Derived from Quasi-delicts – an act or omission by one person which causes damage to another giving rise to the obligation to pay for the damage done, there being fault or negligence, and there is no pre-existing contractual relation between the parties. Example: In a pedestrian, one who was hit by a speeding jeepney due to negligence Persons liable for damages arising from quasi-delicts: a. Father or mother b. Guardians c. Owners and managers of an establishment or enterprise d. Employers e. The state f. Teachers or heads of establishments of arts and trades Nature and Effect of Obligation: • Obligation to be diligent – “Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of the family, unless the law or the stipulation of the parties requires another standard of care.” Example: “A” binds himself to deliver to “B” a specific race horse on certain day. Before the arrival of the agreed upon, “A” has the accessory obligation to take care of the horse such as feeding it regularly until he actually delivers the horse on the specified date. If the horse dies as a result of “A’s” failure to exercise proper diligence he shall be liable for damages. • Obligation to give a determinate thing – delivering all its accessions ad accessories even though they may not have been mentioned. Accession – pertains to the fruits of a thing or additions to or improvements upon a thing such as trees planted on a land, and rents on buildings. Accessories – pertains to things joined to or included with the principal thing for the latter’s embellishment such as frame of the picture, keys of the car, etc. • Obligation to do – if a person obliged to do something fails to do it, the same shall be executed at his cost. Example:UC-CEA Department of Computer Engineering 16
  4. 4. CoE 413 – Contracts, Laws and Ethics Law on Contracts “A” binds himself to construct a building for “B”. However, it was constructed in accordance with the agreed plans an specification. In this case, it may be ordered undone. • Obligation not to do – when the obligation consists in not doing, and the obligor does what has been forbidden him, it shall be undone at his expense. Example: “A” and “B” agreed that the latter will not construct an adjoining fence between their lands for a certain period. IF “B” violates the agreement, the same shall be demolished at his expense. • Obligation to deliver – the obligor may bind himself to deliver either a specific (determinate) or generic (indeterminate) thing. Rights to the fruits: • Natural fruits • Industrial fruits • Civil Fruits Example: “A” binds himself to deliver the land to “B” on February 5, 2006”. Before this date, “B” has no rights over the fruits of the land. After Feb. 5, 2006 he has perfect rights over the same. However, if “A” actually delivered the land on Feb 25, 2006, “B” could only acquire real right (ownership) over the land on such date. Primary classifications of Obligations: a. Pure and conditional obligations Pure obligation – an obligation which is not subject to any condition or burden. Example: “A” promised to give “B” the sum of P1,000.00 Meaning: The obligation to pay is demandable at once because there is no specific date mentioned for its performance. Neither is it subject to any condition imposed for its fulfillment. Conditional obligation – an obligation whose performance is subject to any condition. Example #1: “A” binds himself to give “B” a car as soon as “A’s” mother arrives from Canada. Meaning: The obligation is demandable only upon the fulfillment of the conditions the arrival of the mother. Example #2: I will allow you to use my car until you pass the Bar Examinations. Meaning: The obligation is immediately demandable but it will be extinguished upon the happening of the condition, that is, the passing of the Bar examinations.UC-CEA Department of Computer Engineering 17
  5. 5. CoE 413 – Contracts, Laws and Ethics Law on Contracts b. Obligations with a period – an obligation whose performance is subject to the expiration of said period or term. Example: 1. I will give you a gift on your birthday. 2. I will give you a 200 peso allowance until you finish your course. 3. Payment of taxes. c. Alternative and facultative obligations Alternative obligation – various presentations are due, but the performance of one of them is sufficient determined by the choice which rightfully belongs to the debtor (obligor) unless it has been granted expressly to the creditor (oblige) Example: “A” binds himself to deliver to “B” either a gold ring or a gold watch. Meaning: “A” should deliver one of them and it is required that the performance must be complete, that is, he cannot deliver the stone of the ring or bracelet of the watch. Facultative obligation – an obligation where one presentation is due but the obligor (debtor) may substitute another. d. Joint and solidary obligations e. Divisible and indivisible obligations f. Obligations with a penal clause Secondary classification of obligations: a. Unilateral and bilateral obligations b. Real and personal obligations c. Determinate and generic obligations d. Civil and natural obligations e. Legal, conventional and penal obligationsMEANING OF CONTRACT: 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. - it is a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a presentation to give, to do or not to do. Difference between contract and obligation: - Contract is one of the sources of obligation, while the latter is the legal relation itself. - Contract is the very agreement of the parties; while the obligation is the remedy which the law affords for its enforcement. Example of Contract to give something: “A” offers to sell to “B” his 1995 Toyota Corolla car for P50,000.00. “B” accepts the offer for such amount.UC-CEA Department of Computer Engineering 18
  6. 6. CoE 413 – Contracts, Laws and Ethics Law on Contracts Since there is a contract, “A” must deliver the car to “B”, but the latter is obliged to pay the amount agreed upon”. Example of Contract to render some service: “A” binds himself to construct the house of “B” for P100,000.00. Elements of a Contract: a. Essential elements – are requisites of a contract. 1. Consent of the contracting parties – consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Incapacitated to give consent: a. Unemancipated minors – who have not reached the age of majority (21 years) b. Insane or demented person – denotes the degree of mental illness. c. Deaf, dumb and cannot write – but a deaf, mute who knows how to write could intelligently give consent. Vises of Consent: a. Error or mistake b. Violence or force c. Intimidation threat or duress (pressure) d. Undue influence e. Fraud or deceit Essential Characteristics of Consent: a. It is intelligent b. It is free and voluntary c. It is conscious or spontaneous 2. Certain object which is the subject matter of the contract. Requisites of Things as objects of contract: 1. It must not be outside the commerce of men – like plazas, streets, rivers. 2. It must not be contrary to law, morals, good customs, public order or public policy – like opium or marijuana. 3. It must no be impossible either physically or legally. 4. It must be determinate as its kind 3. Cause or consideration of the obligation which is establishedUC-CEA Department of Computer Engineering 19
  7. 7. CoE 413 – Contracts, Laws and Ethics Law on Contracts b. Natural elements – are those that are presumed to exist in certain contracts unless the contrary is expressly stipulated by the parties like warranty against hidden defects in a contract of sale. c. Accidental elements – are the particular clauses, terms or conditions established by the parties in their contract like interests and penalties. Stages of a Contract: a. Preparation, conception, or generation– the parties are still in the negotiation preliminaries. Example: “A” offers to sell his house at Forbes Park to “B” for P500,000.00. Before accepting the offer, “B” requested “A” to accompany him to the location. Thereafter “B” agreed to pay such amount. b. Perfection or birth – the parties have already come to a definite agreement for the meeting of the minds between them exists as to the subject matter and the cause of the contract. Example: If “A” finally agreed to sell such house for P500,000.00, the contract is therefore perfected for they finally meet on the subject matter and a definite consideration. c. Consummation or termination – the parties have already performed their respective obligations which led to termination of contract. Example: If “A” delivers to “B” the necessary documents or transfer such as the title following the signing of the agreement and “B” pays the amount. Instances of Unlawful Contracts: 1. Contract whereby it provides payment of usurious interest is void. 2. Parties cannot enter into contract that will deprive a court of the jurisdiction conferred it by law, for jurisdiction cannot be the subject-matter of the contract. 3. A waiver signed by a student-scholar whereby he relinquishes his right to transfer to another school unless the refunds to the University the equivalent of his scholarship grants, is void. 4. A contract whereby services will be rendered without remuneration is contrary to law and morality. 5. A promise of marriage based on illicit relation such as an agreement to become a common-law wife, is void. Essential Characteristics of Contracts: 1. Obligatory force of contracts – once the contract is perfected it shall have obligatory force upon contracting parties.UC-CEA Department of Computer Engineering 20
  8. 8. CoE 413 – Contracts, Laws and Ethics Law on Contracts 2. Autonomy of contracts – contracting parties are free to enter into a contract and establish such terms and conditions provided they are not contrary to law, morals, good customs, public order, or public policy. 3. Mutuality of contracts – the contract must bind both contracting parties and necessarily there must be mutual consent. 4. Relativity of contracts – the contract takes effect only between the parties, their assigns and heirs. Classification of Contracts: 1. According to their designation a. Nominate – those that can be identified by their individuality and are regulated by special provisions of law, such as a contract of agency, lease, sale. b. Innominate – those which lack individuality are regulated by the stipulation of parties. They are not regulated by special provision of law. 2. According to their profession a. Consensual – perfected by mere consent of the parties without need of other formalities, such as contracts of sale and partnership. b. Real – those which require not only the consent of the parties, but also the delivery of the object of the contract which is necessary such as deposit, commodatum, or pledge. 3. According to their form a. Common or informal – does not require any formality such as loan or lease. b. Special or formal – prescribes some formalities such as donation or chattel mortgage. They should be made in a public document. 4. According to the nature of the obligation they produce a. Unilateral – an obligation for only one of the parties such as in the case of gratuitous deposit. b. Bilateral – reciprocal obligations such as in the case of a contract of sale. 5. According to their cause or consideration a. Onerous – benefit is derived through something which is given or promised, such as in a contract of sale. b. Gratuitous – derives benefit without giving any equivalent or compensation, such as simple donation. 6. According to risk involved a. Commutative – what is given by one party is considered an equivalent given by the other, such as in a contract of lease. b. Aleatory – the cause or consideration is unequal and depend upon the happening of an uncertain event such as in an insurance contract where the business is either risk of loss or risk of gain. 7. According to relations with other contractsUC-CEA Department of Computer Engineering 21
  9. 9. CoE 413 – Contracts, Laws and Ethics Law on Contracts a. Principal – those that exist independently from other contracts such as contracts of lease and sale. b. Accessory – those which cannot exist without another prior contract, such as mortgage and pledge. Characteristics of Contract-Writing: 1. It must be worded in plain language – too technical words must be avoided 2. It must be concise – it must be brief but comprehensive to pave the way for certainty and clarity. 3. It must include all the legal requirements – inclusion of all the requirements required by law. Components of a Contract Construction: A. The proper agreement 1. The prologue or opening clause. Eg. “This Agreement Witnesseth” or “This Contract” 2. The contracting parties Eg. “This CONTRACT made in Manila, Philippines, this 5th day of June, 2006, by and between BETA PUBLICATIONS, a corporation duly organized under the laws of the Philippines and with business address at #2 Magallanes St, Intramuros, Manila, herein after referred to as OWNER and ASAP Semicon, also a corporation organized under the laws of the Philippines and with business address at 414 Ayala Ave., Makati, Metro Manila, hereinafter referred to as CONTRACTOR.” 3. The subject matter – description, scope and location of the work to be performed. Eg. “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 Ave., Makati, Metro Manila, Philippines, which specifications are hereto attached forming part of this contract; and shall provide all labor, materials, and necessary tools and equipment to complete the same.” 4. The term of the contract Eg. “That the CONTRACTOR shall start the construction on December 30, 2006, finish the same on or before December 30, 2006. 5. The contract price. Eg. “That the OWNER binds himself to pay the CONTRACTOR the total sum of ONE MILLION PESOS (P1,000,000.00), Philippine currency.” 6. The attestation clause – a 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 ConditionsUC-CEA Department of Computer Engineering 22
  10. 10. CoE 413 – Contracts, Laws and Ethics Law on Contracts 1. Scope of Contract – the nature and scope of the work must be defined. 2. Terms of the Contract – consists of the tie of commencement and completion of work. 3. Plans and specifications 4. Workmanship 5. Materials 6. Conduct of work 7. Contractual changes 8. Payments 9. Extra-work 10. Contractor’s risks and obligations 11. Contract security 12. Contractor’s liability for injuries. 13. Disputes and arbitration 14. Definition of terms 15. Rights of way 16. Inspection of the work 17. Engineer’s authority ACTIVITY: CONSTRUCT A CONTRACTUC-CEA Department of Computer Engineering 23