3.

Condonation or Remission
a. Concept
b. Kinds
• Total or partial
• Express or implied (Art. 1270, par. 1)
c. Requisites (Art. 1270, par. 2)
d. Presumptions (Art. 1271‐1271; 1274)
e. Effects
• In general
• In case of joint or solidary obligations
f. Governing Rules (Art. 1270)
g. Renunciation of Principal or Accessory Obligation (Art. 1273)
4. Confusion or Merger
a. Concept
b. Effects
• In general (Art. 1275)
• In case of joint or solidary obligations (Art. 1277)
c. Confusion in Principal or Accessory Obligations (Art. 1276)
5. Compensation
a. Concept (Art. 1278); distinguished from Confusion
b. Kinds
i. Total or Partial
ii. Legal
iii. Conventional (Art. 1279, Art. 1282)
iv. Judicial (Art. 1283)
v. Facultative
c. Legal Compensation
i. Requisites (Art. 1279‐1280
ii. Effects (Art. 1290, 1289)
d. When Compensation is not allowed (Art. 1287‐1288)
e. Compensation of Debts Payable in Different Places (Art. 1268)
f. Effect of Nullity of Debts to be Compensated (Art. 1284)
g. Effects of Assignment of Credit
i. with consent of debtor (Art. 1285, par. 1)
ii. with knowledge but without consent of debtor (Art. 1285, par. 2)
iii. without knowledge of debtor (Art. 1285, par. 3)
6. Novation
a. Concept (Art. 1291)
• Change in debtor
• Change in object
• Change in third person who is subrogated
• Change in creditor with its consent or at its instance is not novation
b. Kinds
i. As to form: express or implied
ii. As to origin: conventional or legal
iii. As to object
• objective or real
• subjective or personal
 • mixed
c. Requisites (Art. 1292)
d. Effects (Art. 1296)
e. Effects of the Status of the Original and New Obligation
i. nullity or voidability of original obligation (Art. 1298)
ii. nullity or voidability of new obligation (Art. 1297)
iii. suspensive or resolutory condition or original obligation (Art. 1299)
f. Objective Novation
g. Subjective Novation
i. By change of debtor
• Expromision
o Requisites (Art. 1293) o Effects (Art. 1294)
• Delegacion
o Requisites (Art. 1293) o Effects (Art. 1295)
ii. By change of creditor – subrogation of a third person in the rights of the
creditor (Art. 1300)
• Conventional subrogation
o Requisites (Art. 1301)
o Distinguished from assignment of credit
o Effects (Art. 1303‐1304)
• Legal Subrogation
o Requisites
o When presumed (Art. 1302)
o Effects (Art. 1303‐1304)

CONTRACTS

I. Introduction
A. Concept and Definition (Art. 1305)
B. Classification of Contracts
1. According to subject matter: things or services
2. According to name: nominate and innominate contracts (Art. 1307)
3. According to perfection: by mere consent (Art. 1315) or by delivery of object
(Art. 1316)
4. According to its relation to other contracts: preparatory; principal; or accessory
5. According to form: informal or formal
6. According to purpose
7. According to nature of legal tie created: unilateral, bilateral or reciprocal
8. According to cause: onerous or gratuitous
9. According to risk: commutative or aleatory
C. Characteristics
1. Obligatory Force between the Parties (Art. 1308)
a. General Rule: Freedom to Contract (Art. 1306)
b. Exceptions:
i. When it is inequitable (Art. 1310)
ii. Special disqualifications:
• Art. 87, Family Code
• Arts. 1490 and 1491
 • Art. 1782
iii. What may not be stipulated
• Contrary to Law
(a) pactum commisorium (Art. 2088)
(b) pactum leonina (Art. 1799)
(c) pactum de non alienado (Art. 2130)
(d) other limitations: Labor Code, Corporation Code
• Contrary to morals
• Contrary to good customs
• Contrary to public order
• Contrary to public policy
Cui v. Arellano, 2 SCRA 205 (1961)
c. Effect of contract as to third parties
i. Performance may be determined by third parties (Art. 1309)
ii. When possession of the object of the contract is with a third person (Art.
1312)
iii. Creditors of contracting parties (Art 1313, 1177, 1381)
iv. Interference by third parties (Art. 1314)
2. Mutuality (Art. 1308 to 1310; 1473)
3. Relativity or Privity of Contracts (Art. 1311)
a. Contracts take effect only between the parties, their assigns and heirs
Manila Railroad Co. v. La Compania Transatlantica, 38 Phil. 875 (1918)
b. No one may contract in the name of another (Art. 1317)
c. Stipulations in favor of third persons (Art. 1311, par. 2)
Florentino v. Encarnacion, 79 SCRA 192 (1977)
II. Essential Requisites of Contracts
A. Consent: Requisites (Art. 1319)
1. Perfection of Contract: Offer and Acceptance
a. Offer
• Offer must be certain (Art. 1319)
• what may be fixed by the offeror (Art. 1321)
• when made through an agent (Art. 1322)
• when offer becomes ineffective (Art. 1323)
• business advertisements of things for sale (Art. 1325)
• advertisements for bidders (Art. 1326)
b. Acceptance
• Acceptance must be absolute (Art. 1319)
• Kinds:
o express (Art. 1320)
o implied (Art. 1320)
o qualified (Art. 1319)
• period of acceptance (Art. 1324)
• option contract (Art. 1324)
Sanchez v. Rigos, 45 SCRA 368 (1972)
c. Termination of Offer
d. Perfection of Contract
• Four theories when contract is perfected:
o Manifestation theory
 o Expedition theory
o Reception theory
o Cognition theory (Art. 1319 [2])
2. Legal Capacity of the Parties
a. Minors, insane or demented persons, and deaf‐mutes who do not know how to
write (Art. 1327)
b. When offer or acceptance is made during a lucid interval, intoxication, during
hypnotic spell (Art. 1328)
c. Corporations (Sections 23 and 36, Corporation Code)
3. Vices of Consent: Consent must be Intelligent, Free, Spontaneous and Real (Art.
1330 to 1346)
a. Mistake or Error
i. Mistake of Fact
• As to substance of the object
• As to principal conditions
• As to identity or qualifications of the parties
• As to quantity, as distinguished from simple mistake of account
Asiain v. Jalandoni, 45 Phil 296 (1923)
ii. Mistake or Error of Law
• General Rule: Ignorance of the law excuses no one (Art. 3)
• Exception: Mutual Error of Law (Art. 1334)
iii. Mistake when one party is unable to read (Art. 1332)
iv. Inexcusable mistake (Art. 1333)
b. Violence or Intimidation (Art. 1335)
Martinez v. HSBC, 15 Phil. 252 (1910)
c. Undue Influence (Art. 1337)
d. Fraud or Dolo (Art. 1338)
i. Dolo causante (Art. 1338)
ii. Dolo incidente (Art. 1344 [2])
Hill v. Veloso, 31 Phil. 161 (1915)
• Failure to Disclose Facts when there is a duty to reveal them (Art. 1339)
• Usual exaggerations in trade: opportunity to know the facts (Art. 1340)
• Mere expression of opinion (Art. 1341); Effects (Art. 1344)
Songco v. Sellner, 37 Phil. 254 (1917)
e. Misrepresentation
i. by a third person (Art. 1342)
ii. made in good faith (Art. 1343)
iii. active or passive
Mercado v. Espiritu, 37 Phil. 215 (1917)
4. Simulation of Contracts
Rodriguez v. Rodriguez, 28 SCRA 229 (1914)
a. Kinds: Absolute and Relative (Art. 1345)
b. Effects (Art. 1346)