DISTINCTION FROM OTHER TYPES OF SERVICE LEASES
This contract differs from the service contract in that it does not refer to the activity as such, but to the result of such activity. As to the nature of the work, Article 1588 of the Civil Code makes a distinction: “In the execution of a work it may be agreed by contract that the person executing the work shall provide only his labor or diligence, or that he shall also provide the materials.”
ELEMENTS OF THE CONSTRUCTION LEASE CONTRACT
According to art. 1544 of the Civil Code, the real elements of the work lease contract are the price and the work or result.
-The price: according to the aforementioned article, it must be certain and, unless otherwise agreed, consist of a pecuniary amount. This price, unless otherwise agreed, must be paid with the delivery of the work (art. 1599 of the Civil Code).
As regards the certainty of the price, it need not be specified beforehand or at the time of execution of the contract, since it may be determined subsequently on the basis of the work performed. This determination must be based on official or collegiate rates, by expert opinion, by usage or custom, or by judicial decision.
It is possible to agree that the lease contract be executed on a “lump sum” basis (on the basis of an estimated budget), which may be subject to subsequent changes, except when a change has been made in the plan that produces an increase in the amount of work, provided that the owner has given his authorization (Art. 1593 of the Civil Code). Otherwise, it may be agreed that the price shall be divided according to the parts or “by measure” of the execution of the work, when the latter is composed of separate and independent parts (Art. 1592 of the Civil Code).
-The work or result of the lease (executed and concluded): it will be either the creation (in this case of a new construction) or its repair. Likewise, it may be of a material or intellectual nature, although it will not be exclusively of one or the other type, since manual work will always involve intelligence (as a human activity) and intellectual work will have a material form (the book, the painting, etc.).
-The contractor: he is obliged to render the service or execute the work, called “lessor” by art. 1546 of the Civil Code.
-Owner of the work: also known as “principal/lessee”, he is the one who receives or benefits from the work performed according to Art. 1546 of the Civil Code. He also undertakes to pay a price in exchange for the satisfactory execution of the works.
-Executor of the work: it may be a single person or a group of persons (being the architect or entrepreneur), or consist of technical collaborators (architect, engineer, technical engineer, quantity surveyor, etc.).
-The sublessee: according to art. 1552 of the Civil Code, he is also obliged to the lessor for the amount agreed in the sublease.
CONTENTS OF THE CONSTRUCTION LEASE CONTRACT:
1- OBLIGATIONS OF THE PARTIES
Obligations of the lessor of the work or contractor:
–To perform the work in accordance with what has been agreed: the rules referring to the obligations contained in art. 1124 of the Civil Code shall apply to this, which states:
“The power to terminate obligations is implicit in the reciprocal obligations, in the event that one of the obligors does not comply with what is incumbent upon it.
The injured party may choose between demanding performance or termination of the obligation, with compensation for damages and payment of interest in both cases. They may also request termination, even after having chosen performance, if performance proves impossible.
The Court will decree the resolution that is claimed, unless there are justified causes that authorize it to set a time limit.
-Adhere to the schedule agreed in the contract (explicitly, tacitly or presumed) and, in case it has not been agreed, it will be understood that it must be carried out in a “reasonable time” or, in the last case, this term must be dictated by a Judge (Art. 1128 of the Civil Code).
In case of delay, this may be understood as a breach of contract when this is to be understood as essential. If it is not understood as such, the parties will generally agree on a penalty clause that will involve the payment of a monetary amount in favor of the lessee or the subtraction of this amount from the total for each day of computable delay, although such clause will not be applicable when there has been a modification of work units or new units (for all Supreme Court Judgments of March 26, 2002 and November 13, 2003).
However, as it is a contract of bilateral obligation, the principal or lessee of the work must have complied with its part of the agreement, i.e., the payment of the price, as can be seen stipulated in the Supreme Court’s Ruling of April 4, 2003.
Obligations of the lessee of the construction:
-Duty of cooperation: given that in most cases the work could not be executed without the cooperation of the principal, tacitly deriving this obligation from the provisions of Art. 1258 of the Civil Code, which states:
“Contracts are perfected by mere consent, and from then on they bind, not only to the performance of what has been expressly agreed, but also to all the consequences which, according to their nature, are in accordance with good faith, usage and the law.”
-Duty of reception of the work: which will be given, normally, once the work is finished, according to the provisions of article 1599 of the Civil Code, in relation to article 1157 Civil Code which states:
“A debt shall not be deemed to have been paid unless the thing has been completely delivered or the performance in which the obligation consisted has been made.”
The consequences of the obligation arise from such receipt, i.e., the duty to pay the price, the transfer of risks, the beginning of the statute of limitations for actions arising from the contract, etc.
-Duty to pay the price: this is the main obligation and will be carried out as agreed by the parties. Either by adjustment or lump sum, by administration through the work certifications, or by pieces or measures.
Unless otherwise agreed or customary, according to art. 1599 of the Civil Code, payment shall be made upon delivery of the work in its entirety. The exception stipulated by the Civil Code in this respect is Art. 1592, which provides for proportional payment in the case of an agreement for payment by parts or measures.
Likewise, payment shall be made at the place of delivery (unless otherwise agreed, Art. 1171 of the Civil Code) according to Art. 1599 of the Civil Code. In any other case, payment shall be made at the debtor’s domicile, as provided for in Art. 1171 of the Civil Code. The creditor shall have the right of retention of the thing, if it is of a movable nature, until collection is effected in accordance with art. 1600 of the Civil Code.
2- GUARANTEES AND RIGHTS UNDER THE CONSTRUCTION LEASE CONTRACT
In correspondence with the obligations of the owner or principal, the contractor shall be entitled to the payment of the agreed price in exchange for the execution of the work, in the manner, place and time agreed upon (art. 1599 of the Civil Code).
Guarantees and perfection of the construction lease contract:
As it is a contract of result and not of mere activity, the obligations of both contractor and principal do not end with the performance of the work services, so that the Civil Code contemplates risks between the perfection of the contract and its consummation, being an example of this the loss or destruction of the work before its delivery, or before its reception by the principal.
Thus, the guarantees that protect both parties, as well as the liability, vary in their regulation by the Civil Code depending on whether the contractor has obliged himself only to lease his work and industry, or whether he has also obliged himself to supply the materials for it.
Likewise, it will be differentiated whether the loss or destruction of the work has occurred for reasons that impute fault to one of the parties or not. In the case of fault, Art. 1124 of the Civil Code shall apply, especially in its provision:
“The aggrieved party may choose between demanding performance or termination of the obligation, with damages and interest in both cases. He may also request termination, even after having chosen performance, when performance proves impossible”.
“If the one who contracted the work was obliged to put the material, he must suffer the loss in case the work is destroyed before being delivered, except if there had been delay in receiving it”, likewise, “the one who has obliged himself to put only his work or industry, cannot claim any stipend if the work is destroyed before having been delivered, unless there has been delay in receiving it, or that the destruction has come from the bad quality of the materials, as long as he has warned this circumstance to the owner in due time.”
There are only two exceptions to this:
A) When the owner of the work incurs in mora accipendi: in such a case, as it is clear from the previous orders, the owner or the principal is obliged to pay the price as if he had received it in case of loss or destruction.
B) In the case of a work contract without delivery of materials: the price shall be paid even if the loss or destruction is due to the poor quality of the material, provided that the owner (contractor) has been duly informed of this circumstance (article 1590 of the Civil Code).
TERMINATION OF THE CONSTRUCTION LEASE CONTRACT
According to art. 1594 of the Civil Code, the unilateral termination ad nutum (by its sole will) of the owner or principal of the work lease will be possible by means of the indemnification to the contractor of all his expenses, work and profit that he could have obtained from it, even when the work or construction has already begun to be executed.
Along the same lines, the jurisprudence of the Supreme Court (Judgment of the Supreme Court, First Civil Chamber, of October 15, 1992, Judgment of the Supreme Court of April 15, 1992, and Judgment of the Supreme Court of October 17, 1996, among others) have upheld the need to compensate the contractor, in the sense that the contractor’s right to receive economic benefits arising from the exercise of their economic activity (industrial profit), which must prevail in cases of unilateral withdrawal of the owner, cannot be denied.
For the calculation of such benefit – profit – it will be necessary to adhere to what has been agreed, or to the calculation in accordance with the margins or elements that appear in the contract and, in its absence, the determination is a faculty that corresponds to the judge of instance as a matter of fact.
Likewise, in the event of the death of the contractor, when the work contract has been entrusted to a certain professional by reason of his personal qualities (contractual nature “intuitu personae“), Art. 1595 of the Civil Code establishes that the contract shall be terminated by the death of said person. The article adds:
“In this case the owner must pay to the heirs of the builder, in proportion to the agreed price, the value of the part of the work executed and of the materials prepared, provided that from these materials he derives some benefit.”
Finally, if the work has begun but for reasons of impossibility (not default) it cannot be finished and delivered, the principal shall deliver to the contractor the same amount as in the previous case, since art. 1595 of the Civil Code also provides that “the same shall be understood if the person who contracted the work cannot finish it for some cause independent of his will.”