Lease of Work or Service

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Contract for a Piece of Work

What constitutes a contract for a piece of work – In a contract for a piece of work, “the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation.”[1]

Same; Contract for services and contract of employment – A contract for lease of work or service does not necessarily rule out the existence of an employment relationship.[2] If it is established that the work is an integral part of the business and the worker does not have any independent business or professional service, the work is presumed to be for a regular employment.[3]

Best Legal Practices

  • Contract for a piece of work, avoiding employer-employee relationship – Legitimate job contracting is allowed. To avoid creating an employer-employee relationship, the contract for a piece of work should clearly state therein that the employer and employee relation does not exist between the parties arising out of or in connection of the agreement. Without such a stipulation, the contract for a piece of work may be considered as one of employment resulting in the application of labor laws.

When contractor produces work from materials furnished by him – In case the contractor bounds himself to produce the work from materials furnished by him, he is required to deliver the thing produced to the employer and transfer ownership thereof.[4] The contractor bears the loss in case the work is destroyed before its delivery unless there was delay in receiving it.[5]

Quality of work output – The contractor is required to execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use.[6] If the work output does not meet such quality, the employer has these options: (a) to require the contractor to remove the defect or execute another work; or (b) to engage a third party in order to have the defect removed at the contractor’s cost if the latter fails or refuses to comply with his obligations.[7]

Best Legal Practices

  • Document stipulated qualities and subsequent modifications on work output – For the benefit for both parties, the stipulated qualities should be documented by describing in complete detail the qualities of the final work output in the contract. Should there be subsequent modifications agreed upon, it should likewise be documented and the parties should initial or sign it to manifest their consent.

Expert judgment – If the parties have agreed that the work is to be accomplished to the satisfaction of the proprietor, then it is understood by and between them that in case of disagreement the question will be subject to expert judgment.[8]

When approval dependent on third person – If the parties agree that the work is subject to approval of a third person, the latter’s decision is final unless there is fraud or manifest error.[9]

Waiver or limitation of liability for any defect – While the parties may enter into an agreement whereby they would waive or limit the contractor’s liability for any defect, the same is rendered void if the contractor acted fraudulently.[10]

Contractor providing work or skill only – The contractor who undertook to provide only his work or skill is not entitled to compensation if the work is destroyed before its delivery.[11]  The latter rule does not apply in these situations: (a) when there has been delay in receiving the work output; or (b) when the destruction as caused by the poor quality of the material provided this fact was communicated in due time to the owner.[12] However, the contract is extinguished in the event that the material is lost through a fortuitous event.[13]

Acceptance of work by contractor – If the employer accepts the work, the contractor is relieved or released of liability for any defect.[14] The latter rule does not apply in these situations: (a) the defect is hidden and the employer is not exempt, by his special knowledge, to recognize it; or (b) the employer expressly reserves his rights against the contractor by reason of the defect.[15]

Best Legal Practices

  • Employer to observe due diligence in inspecting work output before accepting – The employer should observe due diligence in inspecting the work output before accepting it as the contractor is released from liability for any defect once the thing produced is received. For good measure, the employer should reserve his rights against the contractor for any defect despite acceptance by providing a stipulation to that effect on the contract. On other hand, the contractor should limit the period within which the employer may exercise such right.

Price or compensation paid at time and place of delivery of work – Except as otherwise stipulated, the employer is to pay price or compensation at the time and place of delivery of the work.[16]

Delay or failure to act required from employer – The contractor is entitled to a reasonable compensation if he cannot proceed to the execution of the work due to an act of the employer that is required and the latter incurs in delay or fails to perform such act.[17]

Incomplete work due to defect of materials by or because of order from employer – The contractor is entitled to an equitable part of the compensation proportionally to the work done and reimbursement for proper expenses made if he is unable to complete the work due to a defect in the material furnished by the employer, or because of orders from the employer, without any fault on the part of the contractor.[18]

Liability of engineer, architect, contractor – Within 15 years from the completion of a building or structure, the engineer or architect who drew up the plans and specifications for a building is liable for damages if it collapses by reason of a defect in those plans and specifications, or due to the defects in the ground.[19] On the other hand, the contractor is liable for the same period of time if the building collapses on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any violation of the terms of the contract.[20] If the engineer or architect supervises the construction, he becomes solidarily liable with the contractor.[21]

Same; Non-waiver of acceptance – Acceptance of the building after its completion is not a waiver of any of the above causes of action arising from said defects.[22]

Same; 10-year prescription – The prescriptive period is 10 years after the collapse of the building.[23]

Contractor who bound himself to build a work for a stipulated price – The contractor who obligated himself to build a structure or any other work for a stipulated price and in conformity with the plans and specification agreed upon with the land-owner, cannot withdraw or demand an increase in the price due to higher costs of labor or materials.[24] The rule does not apply if there has been a change in the plans and specifications, provided: (a) that the change has been authorized by the proprietor in writing; and (2) that the additional price to be paid to the contractor has been determined in writing by both parties.[25]

Owner may withdraw at will even if construction of work already started – The owner has the right to withdraw at will from the construction even if the same has already started.[26] However, the owner is required to indemnify the contractor for his expenses, work, and the usefulness which the owner may obtain therefrom, as well as damages.[27]

Rescission of contract if contractor who was personally chosen dies – The contract is rescinded upon the death of the contractor for a piece of work if he was chosen by reason of his personal qualifications.[28]

Same; Contractor cannot finish work due to circumstances beyond his control – The contract is rescinded if the contractor cannot finish the work due to circumstances beyond his control.[29]

Contractor liable for work done by persons employed by him – For work done by persons employed or engaged by the contractor, he assumes responsibility for them.[30] Similarly, the contractor is liable for all the claims of laborers and others employed by him, and of third persons for death or physical injuries during the construction, subject to the labor law on solidary liability with the principal for wages.[31]

Workers and material owners’ lien – Persons who have put their labor upon or furnish materials for a piece of work undertaken by the contractor have a cause of action against the owner only up to the extent of the amount owing from the latter to the contractor at the time the claim is made.[32] Notwithstanding, the following does not prejudice the laborers, employees, and furnishers of materials: (a) payments made by the owner to the contractor before they are due; and (b) renunciation by the contractor of any amount due him from the owner.[33]

Lien on movable – A person who has executed work upon a movable has a right to retain it by way of pledge until he is paid.[34]

[1] CIVIL CODE. Article 1713. “The contractor may either employ only his labor or skill, or also furnish the material” (Article 1713, Civil Code).

[2] Paguio v. NLRC, G.R. No. 147816, 09 May 2003.

[3] ABS-CBN v. Nazareno, G.R. No. 164156, 26 September 2006.

[4] CIVIL CODE. Article 1714. “This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale” (Ibid.).

[5] Ibid. Article 1717.

[6] Ibid. Article 1715.

[7] Ibid.

[8] CIVIL CODE. Paragraph 1, Article 1730.

[9] Ibid. Paragraph 2, Article 1730.

[10] Ibid. Article 1716.

[11] Ibid. Article 1718.

[12] Ibid.

[13] Ibid.

[14] CIVIL CODE. Article 1719.

[15] Ibid.

[16] CIVIL CODE. Article 1720. “If the work is to be delivered partially, the price or compensation for each part having been fixed, the sum shall be paid at the time and place of delivery, in the absence if stipulation” (Ibid.).

[17] Ibid. Paragraph 1, Articles 1720 and 1721. “The amount of the compensation is computed, on the one hand, by the duration of the delay and the amount of the compensation stipulated, and on the other hand, by what the contractor has saved in expenses by reason of the delay or is able to earn by a different employment of his time and industry” (Paragraph 2, Article 1721, Ibid.).

[18] Ibid. Article 1722.

[19] Ibid. Paragraph 1, Article 1723.

[20] Ibid.

[21] CIVIL CODE. Paragraph 1, Article 1723.

[22] Ibid. Paragraph 2, Article 1723.

[23] Ibid. Paragraph 3, Article 1723.

[24] Ibid. Article 1724.

[25] Ibid.

[26] CIVIL CODE. Article 1725.

[27] Ibid.

[28] CIVIL CODE. Paragraph 1, Article 1726. “In this case the proprietor shall pay the heirs of the contractor in proportion to the price agreed upon, the value of the part of the work done, and of the materials prepared, provided the latter yield him some benefit” (Paragraph 2, Article 1726, Civil Code).

[29] Ibid. Paragraph 3, Article 1726.

[30] Ibid. Article 1727.

[31] Ibid. Article 1728.

[32] Ibid. Article 1729.

[33] Ibid.

[34] CIVIL CODE. Article 1731.

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