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Friday, January 17, 2014

Self-Made Reviewer on Law on Negotiable Instruments
NIL (Act No. 2031)
CHAPTER 1 FORM AND INTERPRETATION
APPLICABILITY OF NIL
- Act applies only to negotiable instruments and those meet requirements in Section1.
- Any case not provided in this Act, govern by existing legislation or in default rules of law merchant.
3 FUNCTIONS & IMPORTANCE OF NI
1. Used as a substitute for money
*NI differs from money; NI is valuable/worthless depending on financial ability of parties to them
2. Media of exchange
3. Media of credit transaction
PURPOSE OF NEGOTIABILITY
- Allow men of UNDOUBTED credit to carry on business enterprise with the use of instruments knowing
that other businessmen will treat this promises as CASH.
Check for immediate payment
BofE & PN for circulation of credits
2 CHARACTERISTICS/FEATURES OF NI
1. Negotiability quality/attribute where NI give the HDC the right to hold NI & collect sum payable for
himself FREE from defences
*A bona fide holder, FREE from PERSONAL DEFENSES, but may be subject to REAL DEFENSES.
2. Accumulation of Secondary Contracts (as they are transferred from one person to another)

10 COMMON FORMS OF NI (bbbb dd cpt)

1. BofE
2. Bank check
3. Bank notes
4. Bankers acceptance
5. Bonds
6. Drafts
7. Due bills
8. Check
9. Promissory Notes
10. Trade acceptance

6 INSTRUMENTS W/ LIMITED NEGOTIABILITY

1. LETTER OF CREDIT
- letter from merchant/bank/banker in one place, addressed to another (place/country) requesting the
addressee to pay money/deliver goods to 3rd party
- letter requesting one person to make advances to 3 rd person on the credit of writer
2. TREASURY WARRANT
- govt warrant for payment of money covering payment/replenishment of cash advances for official
expenditures
3. POSTAL MONEY ORDER
4. BILL OF LADING
- NO unconditional promise/order to pay a sum certain in money
5. CERTIFICATE OF STOCK
- written instrument signed by proper officer of corporation stating name of person (owner of
designated # of shares of its stock)
- NO unconditional promise/order to pay a sum certain in money
6. WAREHOUSE RECEIPT
- NO unconditional promise/order to pay a sum certain in money
Section 1 Memorize
NI contractual obligation to pay money
To determine the negotiability of an instrument, consider the ff:
1. whole of the instrument
2. only what appears on FACE of the instrument
3. provisions of NIL esp. Section1
MAKER person issuing PN
DRAWER person issuing BofE
UNCONDITIONAL PROMISE PN
UNCONDITIONAL ORDER BofE

*Where the meaning is doubtful, the courts adopted the policy of resolving IN FAVOR OF
NEGOTIABILITY of the instrument.
*There is NO ORAL NI.
*The signature (of maker/drawer) is a prima facie evidence of his intention to be bound.
*If the signature placed in instrument, UNCLEAR what capacity person intended to sigh, he is deemed
INDORSER not maker/drawer.
*NI CEASES to be negotiable if the INDORSEMENT prohibits FURTHER negotiation of instrument.
Eg. Pay to Pedro Cruz.
*PLACE & DATE NOT ESSENTIAL to negotiability of instrument EXCEPT in cases, date IS necessary to
know the due/interest.
*Instead of promise to pay, other acceptable terms can be used:
- I agree to pay
- I will pay
- I bind myself to pay
- good to A or order
- due to A or order
- I acknowledge to be indebted
*MERE acknowledgment of debt w/o the word ORDER or BEARER (words of negotiability) DOES NOT
satisfy negotiability.
*The word TO THE ORDER OF and OR ORDER is a promise to pay as ordered/commanded by PAYEE but
may be payable to BEARER.
*When NO TIME of payment is expressed, an instrument is payable ON DEMAND.
*A note may be signed by SEVERAL persons either JOINTLY or JOINTLY AND SEVERALLY.
PN maker, payee
BofE drawer, drawee, payee (parties need NOT ALL be distinct persons. Thus, drawer may draw on
himself payable to his own order.)

P1000

December 29, 2013

Manila
Thirty days after date, pay to (unconditional order to pay) to A or order the sum of One
Thousand (P1000) Pesos. Value received and charge the same account of
(Sgd.) B
To C
College, Sampaloc
Manila
LEGEND:
B drawer
C- drawee; not really a party to the bill, assumes liability ONLY when he accepts the bill usually by
writing the word ACCEPTED and signs his name on the face where he becomes ACCEPTOR and NOT A
DRAWEE. By being this (acceptor), he becomes primarily liable like the MAKER of a note; DRAWER is
ONLY A SURETY then.

*The words (in BofE) CHARGE THE SAME TO THE ACCOUNT OF means amount to be paid by DRAWEE is
to be charged against the funds of DRAWER. But this may be omitted.
2 IDEA & PURPOSE OF BofE
1. DRAWERs funds in hands of DRAWEE
2. Liability of DRAWEE for non-payment
- If DRAWEE refuses to accept when he has funds for purpose, he is LIABLE TO DRAWER (not to PAYEE)
for resulting damages & harm done to his (DRAWER) credit.
-If DRAWER no funds in DRAWEE, presumed that DRAWER made arrangements with DRAWEE so he will
honor the bill. In such case, DRAWEE must look to the DRAWER for reimbursement and NOT TO BONA
FIDE HOLDER.
Section 2 Certainty as to sum, what constitutes
Sum payable is SUM CERTAIN although paid:
- w/ interest
- by stated installments
- by stated installments w/ provision that upon default in payment of any installment/interest, the
whole shall become due
- w/ exchange, fixed/current rate
- w/ costs of collection/attorneys fee in case payment not made at maturity
*If instrument calls for an ACT OTHER THAN payment of money NOT NEGOTIABLE
*A note giving the MAKER the right to ascertain the AMOUNT payable NON-NEGOTIABLE
*A promise to pay P1000 in two installments or in installments NON-NEGOTIABLE
*Acceleration at option of HOLDER NON-NEGOTIABLE
*Acceleration at option of MAKER NEGOTIABLE
(The MAKER can avoid acceleration by paying the installments on their due date)
*The promise/order to pay w/ exchange NEGOTIABLE
(EXCHANGE charge for providing funds, may be fixed/current rate; eg. compensating balance)
*Payment in FOREIGN CURRENCY NEGOTIABLE
*Payment w/ EXCHANGE RATE NEGOTIABLE
- applicable only to foreign bills
*If payment not made at maturity, then there is ADDED amount due (eg. Cost of collection, attorneys
fee) NEGOTIABLE
*Attorneys fee may be REDUCED by courts if found UNREASONABLE; if attorneys fee NOT specified, it
shall be in REASONABLE SUM.
*A provision of to pay ALL costs, charges and expenses incurred by PAYEE in ANY legal proceedings for
collection of debt NON-NEGOTIABLE
*Acquisition of instrument AFTER MATURITY
- a transferee acquiring an instrument when it is OVERDUE would NOT BE HDC & would hold
instrument subject to defenses, as if it were NON-NEGOTIABLE.

Section 3 Promise is UNCONDITIONAL when:

- INDICATION of a particular fund out of w/c reimbursement is to be made or particular account to be
debited w/ the amount (NOT direct source of payment, only source of reimbursement) - NEGOTIABLE
- statement of transaction w/c gives rise to instrument - NEGOTIABLE
Promise is NOT UNCONDITIONAL an order/promise to pay OUT OF particular fund (direct source of
payment) NON-NEGOTIABLE
*The test of NEGOTIABILITY is whether the instrument carries the GENERAL PERSONAL CREDIT of
MAKER/DRAWER.
*A BARE acknowledgment of indebtedness (eg. IOU, due A P1000, for value received) ALONE NONNEGOTIABLE. But if words like DUE A OR ORDER, DUE B OR BEARER NEGOTIABLE although NO express
promissory words
*In BofE, there must be an ORDER TO PAY one party to another, OTHERWISE, it is NON-NEGOTIABLE.
ORDER command/imperative direction
*A MERE request IS NOT an ORDER.
(eg. I request you to pay, I wish you would pay, I authorize you to pay)
*The MERE use of POLITE words like PLEASE does NOT convert ORDER into REQUEST.
*The NOTE/BILL must be payable ABSOLUTELY.
*It is IMMATERIAL whether the DRAWEE obeys the order to pay or not. The NEGOTIABILITY of a bill
DEPENDS upon the TERMS OF ORDER. The DRAWER has his liability under the law.
*If there is CONDITION or subject to CONTINGENCY NON-NEGOTIABLE
* If language used is AMBIGUOUS or OBSCURE, courts usually decide IN FAVOR OF NEGOTIABILITY.
*A MERE recital of consideration for instrument is STILL UNCONDITIONAL NEGOTIABLE (statement
merely identifies the transaction w/c gives rise to instrument)
(eg. I promise to pay to order of P1000 being the price of the car this day sold and delivered to me ; as
per our contract; accordance w/ our contract)
*If promise/order is subject to TERMS AND CONDITIONS NON-NEGOTIABLE
(As already stated, the negotiability of instrument is to be determined by what appears on its FACE
AND NOT ELSEWHERE.)
Section 4 Determinable future time, what constitutes
- fixed period after date/sight - NEGOTIABLE
- on/before a fixed or determinable future time specified - NEGOTIABLE
- ON/AFTER (fixed period) the occurrence of a specified event w/c is CERTAIN to happen, not known
when NEGOTIABLE (eg. Death of father); if BEFORE NON-NEGOTIABLE
*An instrument payable w/ CONTINGENCY (an uncertain future event, or an event w/c may or may
not happen) is NON-NEGOTIABLE, and the happening of the event DOES NOT cure the defect.

DEMAND INSTRUMENT payment at anytime

TERM INSTRUMENT payabe only UPON ARRIVAL of time for payment
AFTER SIGHT means AFTER the instrument is SEEN by the DRAWEE upon presentment of acceptance
DETERMINABLE FUTURE TIME means a time that can be DETERMINED W/ CERTAINTY AFTER execution
of instrument
Section 5 Additional provisions still NEGOTIABLE:
- authorizes SALE OF COLLATERAL securities
- authorizes a CONFESSION OF JUDGMENT (written acknowledgment by defendant of his
indebtedness/liability to plaintiff) if not paid at maturity
- waives the BENEFIT OF ANY LAW intended for advantage/protection of obligor.
(eg. Pay bearer P1000. Notice of dishonor waived.)
- gives HOLDER the election to require something to be done in lieu of payment of money
(eg. I promise to pay P1000 to A or order or an air conditioner at the option of the holder
NEGOTIABLE;
I promise to pay P1000 to A or order or air conditioner NON-NEGOTIABLE because HOLDER cannot
COMPEL him to make payment in MONEY)
Section 6 OMISSIONS; SEAL; PARTICULAR IN MONEY
Still NEGOTIABLE:
- NO DATE
(If there is a date stated but there is no such date in calendar, the law will deem the NEAREST DATE of
the month the date intended; eg. Note dated Apr31 will be construed to be intended for Apr30)
- NO VALUE given
(eg. NO written for value received)
- NO PLACE where it is drawn or is payable
(An instrument that does not specify the place of payment is presumed to be payable at the
place/residence/business of MAKER/DRAWER.)
- WITH SEAL
- Designates a PARTICULAR KIND of current money as payment
(eg. I promise to pay A or order P1000 in Central Bank of fifty peso bills.)
Section 7 Payable on DEMAND when:
- EXPRESSED to be payable ON DEMAND, at sight, or on presentation
- NO TIME for payment is expressed
(eg. Pay to A or order P1000)
Where the instrument is issued, accepted, or indorsed when OVERDUE, it is, as regards the person so
issuing, accepting, or indorsing it, PAYABLE ON DEMAND.
*An OVERDUE instrument is a DEMAND paper. A HOLDER has immediate right of payment for money
promised/ordered to be paid.
Instead of ON DEMAND, other acceptable terms can be used:
- at sight (used in BofE)
- on presentation
- on call

- at anytime called for

*PAYABLE ON DEMAND as regards the MAKER (late issuance), the ACCEPTOR (late received), the
INDORSER (late indorsed)
Section 8 Instrument may be drawn PAYABLE TO THE ORDER of:
- PAYEE; not maker/drawer/drawee
- drawer
(eg. Pay to the order of myself P1000)
or maker
(eg. I promise to pay to the order of myself P1000)
- 2 or more PAYEES jointly
(eg. Pay to the order of A and B P1000)
- 1 or more of several PAYEES
(eg. Pay to the order of A or B P1000)
- HOLDER OF AN OFFICE at the time being
(eg. Pay to the order of the Commissioner of BIR)
*An instrument is PAYABLE TO ORDER where it is drawn payable:
1. to the order of a specified person
2. to him or his order
Consequently, an instrument payable to a SPECIFIED person (eg. Pay to A) is NON-NEGOTIABLE as the
promise/order is LIMITED to paying one person.
*to the order of, or order, to A and his assigns can be used.
*NO PAYEE, not named, not described NON-NEGOTIABLE because there would be nobody who could
indorse the instrument and nobody who could give the order or authority to collect.
Section 9 PAYABLE TO BEARER WHEN:
- Expressed to be SO PAYABLE.
(But an instrument payable to bearer, A is NON-NEGOTIABLE, since the word BEARER in such case
describes A, therefore, payable to A DEFINITE PERSON ONLY)
- Payable to person named therein or BEARER.
(eg. Pay to A or bearer P1000; Pay to B or holder P1000)
- Payable to order of FICTITIOUS PERSON and such fact was KNOWN to person making it so payable.
(eg. Pay to King Kong or order P1000)
* The bill is PAYABLE TO BEARER and NOT TO ORDER because King Kong
a fictitious(feigned/pretended) person.
- Name of PAYEE is not name of any person.
(eg. Pay to the order of Queen of Planet Venus)
(eg. Pay to cash, Pay to money, Pay to sundries)
*The intention of the DRAWER is to make the instrument a BEARER PAPER negotiable by delivery.
- Only/last INDORSEMENT is indorsement in BLANK.

is

*The word INDORSEMENT, as used in the law, refers only to NI.

Section 10 Terms, sufficient when:
CLEARLY INDICATE THE INTENTION to conform the requirements thereof.
*A MERE defect in language/grammatical error still NEGOTIABLE
Section 11 Presumption as to date
If instrument BEARS A DATE, it is PRESUMED to be the TRUE DATE (prima facie) made by maker, drawn
by drawer, accepted by drawee, or indorsed by payee/holder.
*He who claims that some other date is the true date has the burden to ESTABLISH the CLAIM.
Section 12 Ante-dated and Post-dated
Instrument is VALID although it is ANTE-DATED (earlier than true date) or POST-DATED (later than true
date), provided that it is NOT DONE for illegal/fraudulent purpose (eg. Bouncing check, NSF).
The person TO WHOM an instrument is dated is delivered acquires the TITLE thereto as of the date of
delivery.
The ANTE-DATED/POST-DATED may be negotiated BEFORE/AFTER the date given as long as it is NOT
NEGOTIATED AFTER ITS MATURITY.
Section 13 Date may be inserted when:
1. an instrument is payable at a fixed period AFTER DATE but is ISSUED UNDATED,
2. an instrument is payable at a fixed period AFTER SIGHT but the ACCEPTANCE is UNDATED
ANY HOLDER may insert therein the true date of issue/acceptance and the instrument shall be payable
accordingly.
The insertion of a WRONG DATE DOES NOT avoid the instrument in the hands of the SUBSEQUENT HDC;
but as to him the date so inserted is to be regarded as the TRUE DATE.
*The insertion of WRONG DATE constitutes MATERIAL ATERATION.
Section 14 INCOMPLETE and DELIVERED (personal defense)
(4) RULES
1. AUTHORITY TO FILL UP THE BLANKS
- The HOLDER/person in possession has prima facie authority TO COMPLETE an INCOMPLETE
INSTRUMENT by filling up the blanks therein
The law speaks of MATERIAL PARTICULAR (blanks for date, due date, name of PAYEE, amount, rate of
interest) may be filled in. It has been held that even the blank for the name of the DRAWER may be
filled up.
*The authority to complete is not an authority to alter. So, the HOLDER has NO AUTHORITY to change
the amount after it has been filled in, or to insert the words OR ORDER or OR BEARER after the name of
the PAYEE.
2. AUTHORITY TO PUT ANY AMOUNT
- A signature on a BLANK paper delivered in order to be converted into a NI is a prima facie authority to
fill it up as such for any amount.
3. RIGHT AGAINST PARTY PRIOR TO COMPLETION

- If an instrument is incomplete when delivered, the HOLDER has prima facie authority to fill up the
blanks thereon.
- If a blank paper is delivered by the person making the signature, the HOLDER has prima facie
authority to fill it up for any amount if the person making the signature INTENDED TO CONVERT it into
NI.
- In either case of the above (2) situations, the presumption is that the BLANK was filled in
ACCORDANCE W/ THE AUTHORITY GIVEN and W/IN REASONABLE TIME.
4. RIGHT OF HDC
- not enforceable; personal defenses
- The rule is founded upon the principle that where one of 2 persons must suffer by the bad faith of
another, the loss must fall upon the one who FIRST REPOSED confidence and made it possible for the
loss to occur.
Section 15 INCOMPLETE and UNDELIVERED (real defense)
When an INCOMPLETE instrument is UNDELIVERED, if completed & negotiated w/o authority, be a VALID
CONTRACT in the hands of ANY HOLDER, as against any person whose signature was placed thereon
before delivery.
In the absence of any delivery, the instrument though complete in all particulars, there is NO
CONTRACT.
(2) RULES
1. DEFENSE EVEN AGAINST HDC
- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any HOLDER even HDC.
2. DEFENSE AVAILABLE TO PARTIES PRIOR TO DELIVERY
- The invalidity of the instrument is only w/ reference to the parties whose signatures appear on the
instrument BEFORE and NOT AFTER DELIVERY.
(eg. A(maker) P(steals) B C D; Instrument can be enforced against P, B, C because, as indorsers,
they warrant that the instrument is GENUINE and in all respects what it purports to be, etc. As their
signatures appear on the instrument after delivery, the instrument is valid as to them; In case of P, he
is liable not merely because he is an indorser but also because he is the one responsible for the theft,
and the completion and negotiation of the instrument.)
Section 16 COMPLETE and UNDELIVERED (personal defenses)
(4) RULES
1. UNDELIVERED Every contract on NI even if it is completely written is INCOMPLETE AND REVOCABLE
UNTIL it is delivery for the purpose of giving it effect.
a. DELIVERY transfer of possession, actual/constructive, from one person to another. It may be made
either by the maker/drawer himself or through a duly authorized agent.
b. ISSUE FIRST delivery of the instrument, complete in form, to a person who takes it as HOLDER.
C. HOLDER PAYEE/INDORSEE of bill/note who is in possession of it, or the BEARER thereof.
2. IN POSSESSION OF PARTY OTHER THAN HDC
- If a complete instrument is found in the possession of an IMMEDIATE PARTY (know the
conditions/limitations placed upon delivery of instrument) or a REMOTE PARTY (indirect contractual
relation to each other) other than HDC, there is prima facie presumption of delivery but subject to
rebuttal.

- An UNDELIVERED instrument is INOPERATIVE because DELIVERY is a PREREQUISITE to LIABILITY.

However, if instrument is NO LONGER in the possession of the person who signed it and it is COMPLETE
in its terms, a VALID AND INTENTIONAL delivery by him is PRESUMED until the contrary is proved.
3. DELIVERED UNCONDITIONALLY OR FOR A SPECIAL PURPOSE
- If delivery was made/authorized, it may be shown to have been conditional, or for a special purpose
only and not for the purpose of transferring the property (title) to the instrument.
- When delivery is made, it is presumed to be made w/ the intention to transfer ownership of the
instrument to the payee.
- (eg. A delivers the note to B on condition that it will not be binding on him UNTIL co-maker has been
procured or for safekeeping, or for collection only.
B cannot enforce the instrument against A because A can set up the defense that the delivery was
conditional or for a special purpose only and not for the purpose of transferring title to the instrument.
4. IN THE HANDS OF HDC
- If a COMPLETE instrument is in the hands of HDC, a valid delivery thereof by all parties PRIOR to him
is CONCLUSIVELY PRESUMED.
A presumption is said to be CONCLUSIVE when it admits of no evidence to the contrary
Section 17 Construction where instrument is AMBIGUOUS
a. Sum payable expressed both in WORDS and in FIGURES, and there is discrepancy between the two,
SUM in WORDS is SUM PAYABLE; but if WORDS are AMBIGUOUS/UNCERTAIN, FIGURES may be the
reference.
b. Instrument w/ interest but NO DATE specifies, interest runs from the date of instrument; if
instrument is UNDATED, from issue thereof.
c. Instrument UNDATED, considered to be dated as of time it was ISSUED.
d. Conflict between WRITTEN and PRINTED provisions of instrument, WRITTEN provisions prevail.
*The reason for the rule is that the written words are deemed to express the true intention of the
MAKER/DRAWER because they are placed there by himself w/o any particular contract in view.
e. Instrument is AMBIGUOUS whether note or bill, the HOLDER may treat it as EITHER at HIS ELECTION.
f. Signature placed in instrument UNCLEAR what capacity person making the same intended to sign, he
is deemed INDORSER.
*Signature of: (usually)
MAKER lower right-hand corner
DRAWEE lower left-hand corner
HOLDER - back
g. Instrument contain words I promise to pay signed by TWO OR MORE PERSONS, they are deemed to
be JOINTLY AND SEVERALLY LIABLE thereon.
*I promise to pay signed by 2 or more persons SOLIDARY LIABILITY (anyone of the signers may be
held liable for the whole amount of instrument)
*We promise to pay signed by 2 or more persons JOINT LIABILITY (there are as many debts are
there are debtors, each debt being considered distinct and separate from each other)
Section 18 Liability of person signing in trade or assumed name
GENERAL RULE: Only persons whose signatures appear on an instrument ARE LIABLE thereon.
EXCEPTIONS:
a. Where a person signs in a trade or assumed name.

b. The PRINCIPAL is liable if a duly authorized agent signs on his own behalf.
c. In case of forgery, the FORGER is LIABLE even if his signature does not appear on the instrument.
d. When the ACCEPTOR makes his acceptance of a bill on a SEPARATE paper.
e. Where a person makes a WRITTEN promise to ACCEPT a BILL BEFORE it is drawn.
Section 19 Signature by agent; authority; how shown
- The MAKER/DRAWER may sign the instrument PERSONALLY or by another DULY AUTHORIZED by him.
- The authority of the AGENT may be shown, as in other cases of agency, to have been given ORALLY or
in WRITING subject to the provisions of the STATUTE OF FRAUDS. It has been held competent for the
AGENT to sign simply the PRINCIPALS NAME and to show his authority to do so by other evidence.
Section 20 Liability of person signing as agent, etc.
(3) When agent MAY ESCAPE personal liability:
1. He is duly authorized;
2. He add words to his signature indicating that he signs AS AN AGENT, that is, for or on behalf of a
principal, or I a representative capacity;
3. He discloses his PRINCIPAL.
*The MERE addition of DESCRIPTIVE WORDS w/o DISCLOSING the PRINCIPAL will not relieve signer from
personal liability, although he add to his signature the word AGENT, TRUSTEE, ADMINISTRATOR,
GUARDIAN, or DIRECTOR (words added are but description personae describing the person who signed
the instrument)
Section 21 Effect of signature by PROCURATION
PROCURATION act by w/c a PRINCIPAL gives power to another to act in HIS PLACE as he could himself.
- has special and technical meaning; gives a WARNING that the AGENT has but a LIMITED AUTHORITY so
that IT IS the duty of the person dealing w/ him to INQUIRE into the extent of his (AGENT) authority.
*The PRINCIPAL is NOT BOUND if the agent has exceeded the ACTUAL LIMITS of his authority, although
he may acted w/in the general scope of the agency.
(eg. A signature by procuration may be made as follows:
A Mercado
Per Procuration: B San Miguel
Instead of per procuration, per proc., P.P., or pp may be used.
Section 22 Effect of indorsement by INFANT or CORPORATION
The indorsement/assignment of the instrument by a corporation or by an infant PASSES the property
therein, notwithstanding that from want of capacity, the corporation or infant may incur NO LIABILITY
thereon.
EFFECT OF INDORSEMENT BY INCAPACITATED PERSONS
1. MINORS
- As a general rule, contracts entered into by a minor ARE VOIDABLE at his instance or at the instance
of his guardian.
a. While MINOR NOT BOUND by his indorsement for lack of capacity, he CAN TRANSFER
certain RIGHTS. Minority is a real defense available to MINOR.

b. A MINOR may be BOUND where he is guilty of ACTUAL FRAUD committed by specifically

stating that he is of age, when, in fact he is not.
2. OTHER INCAPACITATED PERSONS
- As far as such persons (incapacitated, insane, demented, deaf-mutes, etc) are concerned, THEIR
CAPACITY IS A REAL DEFENSE, that is, available even against HDC.
EFFECT OF INDORSEMENT BY A CORPORATION
As regards corporations, Section 22 applies to cases where corporation has committed ultra vires
acts(acts beyond its powers).
It has been held that a corporation IS NOT LIABLE on notes in a suit thereon by an indorsee, where the
corporation is WITHOUT CAPACITY to make the contract in fulfilment of w/c they are executed.
Section 23 Effect of FORGED signature
FORGERY counterfeit-making or fraudulent alteration of any writing w/ INTENT TO DEFRAUD (eg.
Signing of anothers name; alteration of an instrument in the name,a mount, description of person and
the like)
- a REAL DEFENSE even against HDC
(2) Cases where SIGNATURE is wholly INOPERATIVE and NO RIGHT can be acquired through the
FORGED SIGNATURE:
1. Where signature on instrument is affixed by one who DOES NOT claim to act as an agent and who has
NO AUTHORITY to bind the person whose signature he has forged; and
2. Where signature is affixed by one who purports to be an AGENT BUT NO AUTHORITY to bind the
ALLEGED principal.
(2) CASES OF FORGERY IN GENERAL
1. Forgery of PROMISSORY NOTES
- indorsement of the note
- MAKERs signature
2. Forgery of BILLS OF EXCHANGE
- indorsement of the bill
- DRAWERs signature (either w/ acceptance by DRAWEE; or w/o such acceptance but the bill is paid by
DRAWEE)
*Section 23 DOES NOT purport to declare the instrument TOTALLY VOID nor the GENUINE signatures
thereon INOPERATIVE. IT IS ONLY THE FORGED/UNAUTHORIZED SIGANTURE that is declared to be
INOPERATIVE.
In other words, RIGHTS MAY STILL EXIST and be enforced by virtue of such instrument as to those
whose signature thereto are found to be genuine.
M P A, X (obtains possession of note and forged As signature) B C
C cannot enforce the instrument against M and P because Cs rights against them are CUT OFF by
the FORGED SIGNATURE of A w/c is WHOLLY INOPERATIVE.
Neither can C enforce the note against A because As signature is wholly inoperative. C has NO
RIGHT to retain, discharge, or ENFORCE PAYMENT OF, the note UNDER the forged signature of A.
But C may go against B whose signature is GENUINE and therefore, OPERATIVE. B is a GENERAL
INDORSER who warranted to C that the instrument is GENUINE and was VALID and SUBSISTING
(existing) at the time of Bs indorsement.

Of course, B or C has a right of recourse against X, the forger.

A can recover from M and P because his rights against them WERE NOT affected by forgery. The
signature of M and P are genuine and they are liable to A on their contract.
2 EXCEPTIONS TO THE GENERAL RULE THAT NO RIGHT/TITLE CAN BE ACQUIRED TO AN NI THROUGH
OR UNDER A FORGED/UNAUTHORIZED SIGNATURE
1. If the party against whom it is sought to enforce such right is PRECLUDED (stopped) from setting up
forgery or want of authority; and
2. Where forged signature is NOT necessary to the HOLDERS TITLE in w/c case the forgery may be
DISREGARDED.
(2) PERSONS PRECLUDED FROM SETTING UP THE DEFENSE OF FORGERY
1. Those who by their acts, silence, or negligence are estopped from setting up the defense of forgery;
and
2. Those who warrant/admit the genuineness of the signatures in question, namely:
a. indorsers
b. acceptors
c. persons negotiating by delivery
READ pp.76-77
(4) RIGHTS OF PARTIES IN CASES OF FORGED INSTRUMENTS
1. Where note payable to order
- Where the note is payable to ORDER, the party whose indorsement (inoperative) is forged IS NOT
LIABLE to any holder even HDC.
- The other parties (including the MAKER) prior to the party whose signature is forged ARE NOT ALSO
LIABLE to ANY HOLDER. The instrument being payable to order, can be negotiated ONLY BY
INDORSEMENT COMPLETED BY DELIVERY. But since the indorsement is forged, it is INOPERATIVE, and
therefore, cannot operate to transfer ANY RIGHT/TITLE over the instrument.
2. Where note payable to bearer
- Where the note, mechanically complete, is originally payable to bearer, the party whose indorsement
is forged is LIABLE to HDC but NOT to one who IS NOT HDC.
- The other parties (including the MAKER) prior to the party whose signature is forged, MAY ALSO BE
HELD LIABLE by one who is NOT HDC.
The reason is that the instrument being originally payable to bearer, it can be negotiated by MERE
DELIVERY even w/o indorsement. Hence, even if the indorsement is forged, the FORGERY MAY BE
DISREGARDED.

3. Where bill payable to order

- Where the bill is payable to ORDER, the party whose indorsement (inoperative) is forged IS NOT
LIABLE to any holder even HDC.
a. If DRAWEE pays under a forged indorsement, DRAWER NOT LIABLE on the bill and DRAWEE
may not debit the DRAWERs account.
b. Where, however, checks received MERELY FOR COLLECTION and deposit, the bank, as
agent, CANNOT BE EXPECTED to know/ascertain the GENUINENESS of all PRIOR indorsements.
4. Where bill payable to bearer
- In case the bill is originally payable to BEARER, the DRAWEE may debit the DRAWERs account in spite
of the forged indorsement. The reason is that the forged instrument is NOT NECESSARY to the title of
the holder. The DRAWEE cannot recover from the HOLDER.

Section 30 What constitutes negotiation

Negotiation to constitute the transferee the HOLDER thereof
2 METHODS OF NEGOTIATION
1. BEARER delivery
2. ORDER indorsement then delivery
*ANY person in possession of BEARER instrument is ALWAYS the bearer thereof, although he may have
NO legal RIGHT thereto. Meaning, if instrument is negotiated to HDC, the latter may acquire BETTER
RIGHT than transferor.
*NO NEGOTIATION if the transfer does NOT make the transferee the HOLDER of instrument.
(eg. If M makes a note payable to P or order, then P delivers w/o indorsement to A, negotiation is NOT
affected because A, by such transfer, DOES NOT become the HOLDER.) just an ordinary ASSIGNMENT
because it is ORDER instrument but NOT indorsed.
*PAYMENT of check (or other bill) by drawee-bank is NOT NEGOTIATION and does NOT make bank the
HOLDER; BANK is not the payee or indorsee; check is EXTINGUISHED and CANNOT be put in circulation
again to bind the drawer or indorser.
* The writing of HOLDERs name on the back of the check before surrendering for PAYMENT to draweebank is NOT INDORSEMENT. Signature merely serves as RECEIPT OF MONEY. Upon payment, the CHECK
becomes merely a VOUCHER, NOT a transfer of TITLE thereto.
3 BASIC METHODS TO TRANSFER NI
1. ISSUE 1st DELIVERY of instrument COMPLETE in form to a person who takes it as HOLDER
- 1st TRANSFER of instrument to PAYEE
2. NEGOTIATION - to constitute the transferee the HOLDER thereof
3. ASSIGNMENT assignee is placed in the position of assignor; assignee acquires instrument subject to
personal and real defenses available against assignor
*NI can be NEGOTIATED or ASSIGNED; NON-NI can only be ASSIGNED/TRANSFERRED, NOT negotiated.
-------------------------------------------------------------------------*Indorsement NOT ONLY mode of transfer but also involves NEW CONTRACT and OBLIGATION on part of
INDORSER an IMPLIED guaranty that instrument be paid according to terms thereof.

NEGOTIATION
Only to NI
Transferee is HOLDER

ASSIGNMENT
All contracts
Transferee
is
ASSIGNEE
HDC - REAL defenses ASSIGNEE

PERSONAL
and
REAL defenses
May acquire BETTER Merely steps in shoes
title than PRIOR party of ASSIGNOR
GENERAL
ASSIGNOR does NOT
INDORSER warrants warrant SOLVENCY
SOLVENCY of PRIOR of prior parties (unless

parties

stipulated
or
INSOLVENCY known
to him)
ASSIGNOR
IS
LIABLE even w/o
NOTICE OF DISHONOR

INDORSER
NOT
LIABLE (unless there
is
PRESENT-MENT
and
NOTICE
of
DISHONOR)
Governed by NIL
Governed by CIVIL
CODE on assignment
of credits

Can there be negotiation to a PAYEE?

MAKER/DRAWER PAYEE payee acquires title by ISSUANCE, NOT negotiation
MAKER/DRAWER AGENT of MAKER/DRAWER PAYEE payee acquires title by NEGOTIATION
*If negotiation refers to instrument already completely executed/ISSUED, then ONLY HOLDERS
SUBSEQUENT TO PAYEE can acquire title by NEGOTIATION.
*There is NEGOTIATION also to PAYEE when instrument delivered BACK to him by LAST HOLDER. (In
such case, indorsement of LAST HOLDER not necessary because PAYEE is remitted to his FORMER
RIGHTS, and all intervening parties are DISCHARGED from LIABILITY.)
Section 31 Indorsement; how made
Indorsement be written on INSTRUMENT itself or upon paper attached (allonge) thereto.
Signature of INDORSER, w/o additional words, is SUFFICIENT INDORSEMENT.
INDORSEMENT (from Latin in dorsa writing on the back) writing of indorsers name on the
instrument w/ the intent EITHER 1.) to transfer TITLE to the same, or 2.) to STRENGTHEN security of
HOLDER by assuming contingent liability for its future payment, OR BOTH.
*Indorsement w/o delivery conveys NO TITLE and NO HOLDER.

NECESSITY (SIGNIFICANCE) OF INDORSEMENTS

1. Essential to the execution and for FURTHER NEGOTATION of ORDER instrument.
(eg. Note payable: to the order of P, P must indorse it BEFORE it can be further negotiated)
2. Not necessary to a mere ASSIGNMENT.
(Thus, one can acquire title w/o indorsement of ORDER instrument but he CANNOT be HDC thereof
although entitled to indorsement made.)
3. Determines SUBSEQUENT negotiations or transfer of instrument.
(Indorsement may determine whether another indorsement can be further negotiated [special
indorsement] w/ indorsee name;
or NO further indorsement required for negotiation because it is converted into a BEARER instrument
negotiated by DELIVERY [blank instrument] w/ indorsee signature only;
or RESTRICTED for further negotiation [restrictive indorsement] w/ additional words w/c
prohibit/limit further negotiation)
FORM OF INDORSEMENT
Law does NOT require EXCLUSIVE FORM by w/c indorsement be accomplished but it must be IN
WRITING.

Just like signature of maker/drawer, INDORSEMENT may be written in INK, PRINTED, (RUBBER)
STAMPED, TYPEWRITTEN, or any means that will create a mark.
LOCATION OF INSTRUMENT
1. On instrument itself
*As a matter of practice, indorsement is WRITTEN AT THE BACK of instrument (referred to as dorsal
portion of instrument) but it may be written on the face (although it would entail risk of being held
liable as co-maker [PN] or co-drawer [BofE].
2. Upon paper attached thereto (allonge)
*A paper that is merely clipped/pinned to an instrument is NOT an ALLONGE, and anything written on
it CANNOT be considered as INDORSEMENT. Accordingly, person in possession of instrument is NOT the
HOLDER.
*If there is still space for indorsements, the use of ALLONGE should be avoided so as not to cause
CONFUSION on ORDER OF LIABILITY of indorsers.
Section 32 Indorsement must be of entire instrument
(object of provision: to avoid multiplicity of suits/actions in court)
NO NEGOTIATION if indorsement transfer ONLY PART of AMOUNT payable (not HOLDER but merely is an
ASSIGNEE; renders instrument NON-NEGOTIABLE, NOT PAYEE/BEARER of note, NOT INDORSEE.
(eg. The total payable is P10 000, Pay to A P8 000 NOT VALID NEGOTIATION)
Exception to entirety: Where instrument has been paid in part, it may be indorsed as to the RESIDUE.
(eg. The total payable is P10 000, P2 000 is already paid. Pay to A P8 000 VALID NEGOTIATION)
NO NEGOTIATION if indorsement transfer instrument to 2 or more indorsees severally.
(eg. Pay to A P8 000 and pay to B P2 000 NOT VALID NEGOTIATION)
However, there is VALID NEGOTIATION if indorsees are JOINT.
(eg. Pay to A and B P10 00 VALID NEGOTIATION) A and B must BOTH indorse UNLESS they are
PARTNERS, or one is authorized to indorse for both of them, in w/c case, only one may indorse.
Section 33 Kinds of Indorsement
5 CLASSIFICATIONS OF INDORSEMENT
1. As to the METHODS OF NEGOTIATION
Special
Blank
2. As to the KIND OF TITLE TRANSFERRED
Restrictive
Non-restrictive
3. As to the SCOPE OF LIABILITY OF INDORSER
Qualified
Unqualified (general)
4. As to the PRESENCE/ABSENCE OF LIMITATIONS
Conditional
Unconditional
5. Other kinds of indorsements
JOINT payable to two or more persons jointly
SUCCESSIVE in succession by several indorsers who are liable prima facie in ORDER in w/c they
indorse
REGULAR Delivery Indorsement
IRREGULAR (ANOMALOUS) (placed signature in blank before delivery) Indorsement Delivery
FACULTATIVE indorser ENLARGES his liability by writing over his signature a WAIVER of usual demand
(formal protest) and NOTICE OF NON-PAYMENT (dishonor).

Section 34 Special, and blank indorsement

SPECIAL indorsement w/ indorsee name; can be further negotiated.
[eg. Pay to A; Pay to the order of A; Pay to A or order (Sgd.) B]
*If instrument originally payable to ORDER, INDORSEMENT NECESSARY for FURTHER negotiation of
instrument.
*If instrument originally payable to BEARER, it may be further negotiated by indorsement or even by
mere delivery but REMAINS a BEARER instrument even if specially indorsed. (BEARER ALWAYS A
BEARER.)
BLANK indorsement specifies no indorsee; can be negotiated by DELIVERY because it becomes a
BEARER instrument.
[eg. I promise to pay A or order P10 000 (Sgd.) B
A (payee) may indorse the instrument in blank by SIMPLY writing his signature at BACK of instrument:
(Sgd.) A
]
*If instrument is payable to ORDER on its face and the ONLY or LAST indorsement is in BLANK, it is
CONVERTED into BEARER instrument.
*If instrument is payable to BEARER on its face, ANY indorsement, whether SPECIAL or BLANK, does
NOT change as BEARER instrument. (BEARER ALWAYS A BEARER.)
*A BLANK INDORSEMENT may be negotiated by delivery, or by indorsement and delivery.
However, ORDER instrument SPECIALLY INDORSED AFTER BLANK INDORSEMENT reacquires status as
ORDER INSTRUMENT.
(eg. ORDER instrument indorsed: SPECIAL SPECIAL BLANK (becomes a BEARER instrument)
SPECIAL (becomes ORDER instrument, again) SPECIAL)
Section 35 Blank SPECIAL
- Done by writing APPROPRIATE words OVER the signature of indorser in blank.
- The INDORSEE CANNOT add to the indorsement ANY contract INCONSISTENT w/ character of
indorsement. (eg. Adding protest waived; Demand and notice waived; Without recourse; if such
was NOT THE INTENTION of parties. Also, adding I hereby guaranty payment will make INDORSER
LIABLE as GUARANTOR and thus NOT ENTITLED to NOTICE in case of DISHONOR.)
*The INSERTION of UNATHORIZED contracts constitutes MATERIAL ALTERATION and AVOIDS INDORSEMENT.
[eg. BLANK SPECIAL
M P (special) A (blank) B (beomes BEARER) (if indorse specially, negotiation will be effected only
indorsement) C (special indorsee)
In example, the indorsement by P A and A B may appear:
Pay to A
(Sgd.) P
(sgd.) A
B, as HOLDER of instrument w/ BLANK indorsement, may PROTECT himself by converting it into
SPECIAL indorsement, as for example, by writing Pay to B, thereby indorsing it to himself. Thus, the
ff will appear:
Pay to A
Pay to B
Section 36 Restrictive indorsement:

(Sgd.) P
(sgd.) A

RESTRICTIVE INDORSEMENT RESTRAINS the negotia-bility of instrument for purpose or to the person
stated therein.
a. Prohibits further negotiation of instrument.
(becomes NON-NEGOTIABLE)
Pay to A only
Pay to A and to no other person
Here, A is the only one authorized to receive payment.
b. Constitutes INDORSEE the AGENT OF INDORSER (AGENCY type: AGENT NO TITLE to instrument;
holds instrument as AGENT of principal, the restrictive indorser subject to restrictive indorsement.)
Pay to B for collection
Pay to B for collection and remittance
Pay to B for collection only
Pay to B for deposit
c. Vests title in INDORSEE in TRUST for or use of some other person
(TRUST type: transfers TITLE to INDORSEE NOT FOR HIMSELF but in trust of for BENEFIT of another
person including INDORSER. The INDORSEE CANNOT NEGOTIATE instrument for OWN BENEFIT BUT FOR
BENEFICIAL OWNER.)
Pay to C in trust for D
Pay to C as trustee for D
Pay to A for my use
Pay to C for the use of D
Mere absence of words of negotiability does NOT make the indorsement restrictive.
*BUT if there are restrictive words stated like only, it prevents further negotiation, become
restrictive indorsement, and NON-NEGOTIABLE.
Note: This is only a handful of reviewer. I hope this helps. :)
Posted by Arleen Dadizon at 1/17/2014 06:32:00 PM

Reactions:
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8 comments:
1.
AnonymousNovember 11, 2014 at 2:59 AM
hi ate thank you for sharing your notes :) i copied to help me in understanding the
law on nego.inst. i'll make use of it as a review. thank you again :) Godbless :))
Reply
Replies

1.
Arleen DadizonDecember 13, 2014 at 5:08 AM
Welcome! ;) Good luck!
Reply

2.
AnonymousNovember 11, 2014 at 2:59 AM
hi ate thank you for sharing your notes :) i copied it to help me in understanding the
law on nego.inst. i'll make use of it as a review. thank you again :) Godbless :))
Reply
3.
Liv MoreAugust 9, 2015 at 3:45 AM
salamat sa reviewer na to...
Reply
4.
Maristela Alfafara RegidorDecember 6, 2015 at 7:22 PM
Thank you :D
Reply
5.
Publius301December 20, 2015 at 9:48 AM
Hi and thanks for the post!... In regards to "Allonge"..is this your interpenetration or
does the act or notes specifically say this. I could not find that term in the Act
itself.... Thanks!
Reply
Replies

1.
Arleen DadizonDecember 31, 2015 at 1:32 AM
Hi Publius301! Thank you for appreciating this humble post. Allonge isn't
stated in the Negotiable Instruments Law but in practice, "allonge" is a
paper attached to a negotiable instrument. That paper is called allonge
because... I don't know! Haha jk but you can try googling it so you can
fully understand what it is and what is its purpose. :) Thank you!!! :)
Reply
6.
Publius301December 20, 2015 at 9:49 AM
Hi and thanks for the post!... In regards to "Allonge"..is this your interpenetration or
does the act or notes specifically say this. I could not find that term in the Act
itself.... Thanks!

Reply

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Self-Made Reviewer on Obligation and Contracts

If you are a law student or just an ordinary student who needs a reviewer, read this. This is my personal
reviewer for my subject in Law on Obligations and Contracts. Hope you learn from it and enjoy reading!
:)
DISCLAIMER: Not all grammars and punctuations are technically correct because I use "keywords",
"shortcuts" for easy understanding and memorization, as for myself.

OBLIGATION juridical necessity to give, to do or not to do

4 ELEMENTS OF OBLIGATION
1. ACTIVE SUBJECT (creditor/obligee) whose obligation is constituted
2. PASSIVE SUBJECT (debtor/obligor) has duty to give, to do or not to do
3. OBJECT/PRESTATION subject matter
4. JURIDICAL/LEGAL TIE (vinculum/efficient cause) reason

CIVIL OBLIGATION

NATURAL OBLIGATION

derived from positive law

derived from equity &

justice

enforceable by court action

not enforceable by court

action

5 SOURCES OF OBLIGATION
1. LAW
2. CONTRACTS
3. QUASI-CONTRACTS arise from lawful, voluntary acts; no one shall be unjustly enriched...
2Kinds
a. Solutio indebiti something received (delivered on a mistake), no right to demand it
b. Negotiorum gestio voluntary mgt of property/affairs of another w/o his knowledge/consent
4. QUASI-DELICT/TORTS/CULPA AQUILIANA arise from damage; fault/negligence

5. CRIMES/ACTS/OMISSIONS punished by law arise from civil liability that is a consequence of a

criminal offense

DILIGENCE OF A GOOD FATHER OF A FAMILY

- care need to be exercised by a debtor to deliver/give determinate thing
Exception: When law/stipulation of parties requires a differnt standard of care (slight/extraordinary
diligence).

When creditor is entitled to the fruits

Rule: The creditor has personal right (right to ask for delivery) from the time the obligation to deliver
arises.
But NO real right (right enforceable against the whole world) until it is delivered.

3 KINDS OF FRUITS
1. NATURAL w/o human intervention
2. INDUSTRIAL w/ human intervention
3. CIVIL derived by virtue of juridical relation

Creditors rights if debtor fails to comply w/ the obligation

1. Determinate
a. Performance
b. Damages
2. Generic
a. Performance
b. Damages
c. Obligation be complied at debtors expense

Creditors rights if debtor does in contravention

1. Damages

2. Ask it be UNDONE at debtors expense

FORTUITOUS EVENT cannot be foreseen, if foreseen, inevitable

General Rule: No person liable to fortuitous event.
Exceptions:
1. Law states
2. Stipulation/contract states
3. Assumption of risk
4. Delay
5. Debtor promises deliver to 2/more persons who do not have same interest (bad faith)

EFFECTS OF FORTUITOUS EVENT to thing to be delivered

- extinguish the obligation if determinate; generic does not extinguish the obligation

3 MISCELLANEOUS RULES ON PERFORMANCE OF OBLIGA-TION

1.
When
to
deliver determinate, accessions (additions/
improvements)
and accessories (joined/included with the principal) are INCLUDED even not mentioned.
2. If debtor fails to do, it shall be DONE AT HIS EXPENSE, same with doing the contravention; poorly
done be undone.
3. In obligation not to do, and obligor does what is forbidden, shall be UNDONE AT HIS EXPENSE.

4 GROUNDS; debtor liable for damages

1. Default/mora
2. Fraud/dolo
3. Negligence/culpa
4. Contrary to terms of obligation

1. DEFAULT/MORA delay

3kinds
a. Mora solvendi debtors delay to give (real ob.), to do (personal ob.)
b. Mora accipiende creditors delay to accept
c. Compensatio Morae delay of both in reciprocal obligation

CONCEPT OF DELAY
General Rule: No demand, No delay
Exceptions:
1. Law states
2. Obligation states
3. Time is the essence
4. Demand be useless if delay
5. Debtor guilty of delay

EFFECTS OF DELAY
1. Damages
2. When to deliver determinate thing, STILL LIABLE in fortuitous event.
2. FRAUD/DOLO conscious, deliberate, intentional evasion of fulfillment
2Kinds
a. Dolo causante/Causal fraud fraud in obtaining consent; consent is defective, contract is
voidable. Remedy: annulment
b. Dolo incidente/Incidental fraud fraud w/c vitiates consent. Remedy: damages

3. NEGLIGENCE/CULPA voluntary act/omission; no bad faith intended

3Kinds
a. Culpa aquiliana/Civil negligence quasi-delict/torts
b. Culpa contractual/Contractual negligence breach
c. Culpa criminal/Criminal negligence crime/delict

4. Contrary to the terms of obligation

2 RULES OF PRINCIPAL & INSTALLMENT

1. Receipt of principal w/o mention of interest, presumed interest is paid also.
2. Receipt of latter installment w/o mention of prior installment, presumed prior installment is paid
also.

4 SUCCESSIVE RIGHTS OF CREDITOR to satisfy claim against DEBTOR

1. Exact payment
2. Attach debtors properties
3. Accion subrogatoria exercise rights & actions except inherent in person
4. Accion pauliana cancel acts/contracts by debtor to defraud creditor

TRANSMISSIBILITY OF RIGHTS
General Rule: ALL RIGHTS are transmissible.
Exceptions:
1. Law states
2. Contract states
3. Obligation is purely personal

10 Kinds of Obligation
1. Pure
2. Conditional
3. Alternative
4. Facultative
5. Joint
6. Solidary

7. Divisible
8. Indivisible
9. Obligation w/ a period
10. Obligation w/ a penal clause

1. PURE OBLIGATION
- w/o condition, demandable at once (pure has resolutory condition/period)

2. CONDITIONAL OBLIGATION
- there is condition in performance; future & uncertain
2Kinds
a. Suspensive condition happening of condition gives RISE to obligation
b. Resolutory condition happening of condition EXTINGUISHES obligation

6 MISCELLANEOUS RULES ON CONDITIONAL OBLIGATION

1. Impossible conditions, contrary to law, shall ANNUL obligation.
2. The condition not to do an impossible thing is considered not agreed upon.
3. The condition that happens in determinate time, EXTINGUISHES obligation.
4. The condition that happens in INDETERMINATE time, obligation only effective at arrival.
5. The condition is fulfilled if DEBTOR prevents fulfillment.
6. The effect of conditional obligation, once fulfilled:
- to give: retroact to the day of constitution of obligation
- has reciprocal prestations: fruits & interests be mutually compensated
- has unilateral obligation: debtor shall give fruits & interests

RULES in case of Loss, Improvement, or Deterioration of thing during the pendency of condition
1. LOST

a. w/ debtors fault damages

b. w/o debtors fault extinguishes obligation

2. DETERIORATION
a. w/ debtors fault - (1) cancel obligation & damages; or (2) fulfill obligation w/ damages
b. w/o debtors fault creditor suffer impairment

3. IMPROVEMENT
a. By nature/time benefit to creditor
b. at expense of debtor debtor no right than that granted to usufructuary (debtor no right to
compensate amount for improvement)

EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION

General Rule: The obligation becomes effective retroactively to the day obligation was constituted.
Exceptions:
1. In reciprocal obligation, fruits & interests during pendency of condition shall compensate each
other.
2. In unilateral obligation, debtor gets fruits & interests unless there is a contrary intent.

3 EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION

1. Extinguish obligation.
2. Both parties restore what they received plus fruits & interests.
3. The rule on L, D, or I will apply to person who has to return the thing.
When one of debtors in reciprocal obligation does not comply w/ his obligation
1. The right of injured party is (1) cancel contract & damages; or (2) fulfill obligation & damages

3 Kinds of Obligation (Accdng to PERSON OBLIGED)

1. UNILATERAL only 1 party obliged to comply

2. BILATERAL both parties; performance not same time

3. RECIPROCAL both parties; performance same time

3. OBLIGATION W/ A PERIOD
- demandability/extinguishment subject to the expiration of period

PERIOD interval of time; either suspends demandability or produces extinguishment

DAY CERTAIN must come, not known when

7 CASES CONSIDERED TO BE OBLIGATION W/ A PERIOD

1. Little by little
2. In partial payment
3. Payable ASAP
4. When I can afford it
5. When I have the money
6. When I am able to
7. When my means permit me to do so

PERIOD

CONDITION

certain

uncertain

future only

future/past but unknown

(*influence upon obligation)

only upon its demandability

(*) on the very existence of

obligation itself

FOR WHOSE BENEFIT IS THE PERIOD?

General Rule: Both the debtor & creditor.
Therefore, NEITHER of them can demand performance of obligation.

Exception: If the term of obligation has to favor one of them.

5 INSTANCES WHEN DEBTOR LOSES RIGHT TO USE PERIOD

1. Debtor is insolvent.
2. Debtor attempts to abscond.
3. Impairment of guarantees/securities.
4. Failure to furnish guarantees/securities promised.
5. Violation of undertaking.

4. ALTERNATIVE OBLIGATION
- w/ 2 or more prestations, only 1 is due.

5. FACULTATIVE OBLIGATION
- w/ ONLY 1 prestation but can be substituted.

ALTERNATIVE prestations LOST w/ debtors fault

Creditor entitled to damages but needs ff requisites:
1. Debtor can choose.
2. All prestations lost/become impossible due to debtors fault.

ALTERNATIVE OBLIGATION

FACULTATIVE OBLIGATION

several prestations due,

giving one is sufficient

one prestation due, but can

be subtituted

right to choose (debtor)

unless granted to creditor

right to choose DEBTOR ONLY

If 1 of the prestation is
illegal, others may be valid,
obligation remains

nullity of principal carries

w/ it nullity of accessory/
substitute

loss/impossibility of ALL
prestations due, w/o
debtors fault, extinguishes
obligation

loss/impossibility of prestation due, w/o debtors fault,

extinguishes obligation

(3) SUMMARY OF RULES, OBLIGATIONS, & RIGHTS OF DEBTOR IN ALTERNATIVE OBLIGATION

1. If 1 of prestations lost through fortuitous event, shall still be perform by choosing (creditor) from
the remainder.
2. If 1 of prestations lost through debtors fault, creditor may claim any of remainders w/ damages.
3. If ALL prestations lost through debtors fault, creditor choose price w/ damages.

RULES on LOSS/DETERIORATION of the thing intended as SUBSTITUTE in FACULTATIVE OBLIGATION

1. If there is a loss/deterioration of thing intended as substitute, debtor is NOT liable if NOT HIS FAULT.
But if substitution is already made, debtor is liable for loss of substitute when in DELAY, NEGLIGENCE,
or FRAUD.

6. JOINT OBLIGATION
- obligation is to be paid proportionately by debtors or to be demanded proportionately by creditors

7. SOLIDARY OBLIGATION
- each one of debtors has right to render or each one of creditors has right to demand the entire
compliance w/ prestation

MAXIMS & SYNONYMS

MAXIMS

SYNONYMS

JOINT Obligation

To each his own

proportionate

SOLIDARY
Obligation

One for all, all

for one

individually &
collectively

(3) SOLIDARY OBLIGATION EXIST ONLY IF: *RULES

1. Law states
2. Stipulation states
3. Nature of obligation requires

2 PRESUMPTIONS THAT OBLIGATION IS JOINT

1. The debts be divided as many shares as there are debtors/creditors.
2. The debtors/creditors are distinct from one another.

8. DIVISIBLE OBLIGATION
- prestation is capable of partial performance

9. INDIVISIBLE OBLIGATION
- prestation incapable of partial performance

10. OBLIGATION W/ A PENAL CLAUSE

- one w/ accessory undertaking attached to obligation to assume greater liablity in case of breach/nonfulfillment of obligation

3 PURPOSES OF PENAL CLAUSE

1. Ensure performance of obligation
2. Substitute for damages & interest in case of noncompli-ance
3. Penalize debtor in case of breach

In case obligation has a PENAL CLAUSE

General Rule: Penalty takes the place of damages & interest in case of non-compliance.
Exceptions:
1. Stipulation states.
2. Debtor refuse to pay penalty.

3. Debtor guilty of fraud in performance of obligation.

NULLITY OF PRINCIPAL OBLIGATION OR THE PENAL CLAUSE

Nullity of principal obligation = nullity of penal clause
Nullity of penal clause = NOT nullity of principal obligation

10 MODES OF EXTINGUISHMENT OF OBLIGATIONS

1. Payment or performance
2. Prescription
3. Compensation
4. Confusion/merger
5. Condonation/remission
6. Fulfillment of resolutory condition
7. Annulment
8. Rescission
9. Novation
10. Loss of thing due

1. PAYMENT/PERFORMANCE
- Payment means delivery of money & performance of obligation

2 PLACE OF PAYMENT
1. At place agreed upon
2. If w/o agreement
a. Object is indeterminate paid at domicile of DEBTOR
b. Object is determinate place of thing at the time of constitution of obligation

4 SPECIAL MODES OF PAYMENT

a. Application of payment
b. Cession
c. Tender of payment & consignation
d. Dacion in payment

a. APPLICATION OF PAYMENT
- designation of debt to w/c payment must be applied when debtor has several obligations of same
kind in favor of same creditor.

3 REQUISITES OF APPLICATION OF PAYMENT

1. Only 1 debtor & 1 creditor
2. 2 or more debts, same kind
3. All debts are due
4. Insufficient payment to exinguish ALL debts

3 RIGHTS TO MAKE APPLICATION OF PAYMENT

1. Right belongs to CREDITOR.
2. If debtor does not avail, creditor can give him receipt designating the debt from which payment will
be applied.
3. If debtor accepts the receipt, he cannot complain unless THERE IS just cause to invalidate the
contract.

b. CESSION
- debtor abandons ALL his property for creditors benefit to obtain payment from proceeds of his
property

5 REQUISITES OF VALID CESSION

1. 1 debtor & 2 or more creditors

2. Debtor is in partial/total insolvency.

3. Debtor to deliver ALL his property to creditors
4. Debt is due & demandable.
5. Creditors must sell the properties & apply the proceeds to their respective credits proportionately.

c. DACION IN PAYMENT (dacion en pago)

- alienation of property to the creditor in satisfaction of debt

3 REQUISITES OF DACION IN PAYMENT

1. Consent of creditor
2. NOT prejudicial to another creditor
3. Debtor not insolvent declared by a judicial decree

CESSION

DACION IN PAYMENT

all properties

NOT all properties

require more than 1 creditor

NOT require all creditors

NOT act of novation

act of novation

NOT transfer ownership

transfer ownership

requires partial/total insolvency

may happen
during solvency of debtor

d. TENDER OF PAYMENT & CONSIGNATION

TENDER OF PAYMENT act of offering the creditor what is due to him w/ a demand that the creditor
accept it
CONSIGNATION act of depositing thing due w/ the court when creditor cannot/refuses acceptance of
payment

5 REQUISITES OF CONSIGNATION

1. Debt due.
2. Creditor refused the tender of payment w/o just cause
3. Notice of consignation already given to persons interested in fulfillment of obligation
4. Consignation of thing/amount due
5. Subsequent notice of consignation to interested persons

5 VALID CONSIGNATION W/O PREVIOUS TENDER OF PAYMENT

1. Creditor is absent/unknown.
2. Creditor is incapacitate to receive at time it is due.
3. Creditor refused give a receipt, w/o just cause.
4. 2 or more persons claim the right to collect.
5. Title of obligation lost.

2. LOSS OF THING DUE

- perishes, disappears, or goes out of commerce; existence is unknown; cannot be recovered

3 REQUISITES TO EXTINGUISH OBLIGATION DUE TO LOSS

1. Determinate thing.
2. W/o debtors fault.
3. No delay.

3. CONDONATION/REMISSION
- gratuitous abandonment of right by the creditor

3 REQUISITES OF A VALID CONDONATION/REMISSION

1. It must be gratuitous.
2. Accepted by obligor.

3. Obligation is demandable.

4. CONFUSION/MERGER
- meeting in 1 person of qualities of debtor & creditor w/ same obligation

3 REQUISITES OF VALID CONFUSION/MERGER

1. The merger of characters of debtor & creditor must be in same person.
2. Take place between principal debtor & creditor.
3. Clear & definite.

5. COMPENSATION
- 2 persons are debtors & creditors of each other

6 ESSENTIAL REQUISITES OF COMPENSATION

1. Parties both principal debtors & creditors of each other.
2. Compensation is not prohibited by law.
3. No retention/controversy by 3rd person.
4. 2 debts are due & demandable.
5. 2 debts are liquidated.
6. 2 debts both in money/consumable things.

(2) CLASSES OF COMPENSATION

1. As to effect
a. TOTAL obligations completely extinguished.
b. PARTIAL a balance remains

2. As to origin or cause

a. LEGAL by law
b. VOLUNTARY/CONVENTIONAL agreement of parties
c. JUDICIAL order from the court
d. FACULTATIVE 1 of parties can choose/oppose claiming compensation

6. NOVATION
- substitution/change of obligation
- substitution of debtor
- subrogation of creditor

(3) OBLIGATIONS MAY BE MODIFIED BY:

1. Changing object/principal conditions. (REAL NOVATION)
2. Changing the person of debtor/creditor. (PERSONAL NOVATION)
a. Substitution change of debtor
b. Subrogation change of creditor
3. Changing person of the parties & the objects of principal condition. (MIXED NOVATION)

4 REQUISITES OF NOVATION
1. Old valid obligation.
2. Agreement of parties to new obligation.
3. Extinguishment of old obligation.
4. Validity of new obligation.

2 FORMS OF NOVATION BY SUBSTITUTION OF DEBTOR

1. EXPROMISION w/ consent of creditor, NO consent of old debtor
2REQUISITES
a. Initiative of 3rd person.

b. Consent of creditor.
2. DELEGACION all must agree (creditor, old debtor, new debtor)
3REQUISITES
a. Initiative from old debtor.
b. Consent of debtor.
c. Acceptance by creditor.

7. SUBROGATION
- change of creditor

2 KINDS OF SUBROGATION
1. CONVENTIONAL consent of original parties & 3rd person
2. LEGAL by law
a. creditor pays another preferred creditor even w/o debtors knowledge
b. 3rd person pays the express approval of debtor
c. 3rd person pays even w/o knowledge of debtor

CONTRACT meeting of minds between 2 persons to give something or to render service.

3 ELEMENTS OF CONTRACT
1. ESSENTIAL w/o them, contract cannot exist
a. CONSENT of contracting parties
b. OBJECT CERTAIN subject matter
c. CAUSE/CONSIDERATION
In some contracts, ff are also essential:

d. FORM
e. DELIVERY

2. NATURAL found in certain contract, presumed to exist unless stipulated

3. ACCIDENTAL various particular stipulations that may be agreed upon by contracting parties

(7) CLASSIFICATION OF CONTRACTS

According to:
1. PERFECTION/FORMATION
a. CONSENSUAL perfected by mere consent
b. REAL perfected by delivery
c. FORMAL/SOLEMN special formalities are essential before perfection of contract

2. PARTIES OBLIGATED
a. UNILATERAL only 1 has obligation
b. BILATERAL both parties require to render reciprocal prestations

3. CAUSE
a. ONEROUS exchange of considerations
b. GRATUITOUS no consideration received in exchange of what is given
c. REMUNERATORY something is given for benefit/service that had been rendered previously

4. RISK OF FULFILLMENT
a. COMMUTATIVE equivalent values are given by both parties
b. ALEATORY fulfillment of contract depends on chance (eg. insurance)

5. IMPORTANCE
a. PRINCIPAL contract may stand alone (eg. sale, partnership)
b. ACCESSORY existence depends on another contract (pledge, guarantee)
c. PREPARATORY contract not an end by itself but a means thru w/c other contracts may be made
(eg. agency)

6. NAME
a. NOMINATE contract given a particular/special name (eg. partnership)
b. INNOMINATE not given special name (eg. I give that you may give)

7. SUBJECT MATTER
a. Contracts involving things
b. Contracts involving rights/credits
c. Contracts involving services

3 STAGES OF CONTRACT
1. PREPARATION/CONCEPTION preparatory steps to perfect contract
2. PERFECTION/BIRTH meeting of minds between 2 contracting parties
3. CONSUMMATION/TERMINATION terms of contract are performed, & contract is fully executed

5 BASIC PRINCIPLES/CHARACTERISTICS OF A CONTRACT

1. PRINCIPLE OF AUTONOMY (liberty to contract)
Provided they are not contrary to:
a. Law
b. Morals
c. Good customs
d. Public order
e. Public policy

2. MUTUALITY OF CONTRACTS
- the contract must bind both parties; its validity/compliance cannot be left to the will of one of them

3. RELATIVITY OF CONTRACTS
- Contracts take effect only between the parties, their assigns & heirs except when there are rights &
obligations not transmissible:
a. by their nature
b. by stipulation (stipulation por autri)
c. by provision of law

4. CONSENSUALITY OF CONTRACTS
- Contracts are perfected by mere consent
Exceptions:
a. REAL CONTRACTS perfected by delivery
b. FORMAL/SOLEMN CONTRACTS special form required for its perfection

5. OBLIGATORINESS OF CONTRACTS
- The contract, once perfected, has the force of law between parties which bound to comply in good
faith

4 KINDS OF INNOMINATE CONTRACTS

1. I give that you may give
2. I do that you may do
3. I give that you may do
4. I do that you may give

4 RULES FOR INNOMINATE CONTRACTS

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place

STIPULATION POR AUTRI

- stipulation in favor of 3rd person

5 REQUISITES OF STIPULATION POR AUTRI

1. Stipulation in favor of 3rd person
2. Stipulation is only PART, not the whole of the contract.
3. Both parties must conferred upon a favor of 3rd person
4. 3rd person must accept & say it to debtor before its revocation/cancellation
5. Neither of both parties be the legal representation/autho-rization of 3 rd person

CONSENT
- meeting of offer (certain) & acceptance (absolute) upon a thing

5 REQUISITES OF CONSENT
1. Must be given by 2 or more parties
2. Parties are capacitate to enter in contract
3. No vitiation of consent
4. No conflict between declared & intended
5. Legal formalities must be complied

7 RULES ON OFFER/ACEPTANCE
1. An offer must be certain.

2. Business advertisements for sale are NOT offers but ONLY invitations to make an offer.
3. Advertisements for bidders are ONLY invitations.
4. An acceptance made by letter/telegram does NOT bind offeror EXCEPT from the TIME it came to his
knowledge.
5. An offer made through an agent is accepted from the TIME the acceptance is done through an agent.
6. An offer is ineffective upon death, insanity, insolvency, of EITHER party BEFORE acceptance is made.
7. When offeror allowed offeree a certain period to accept, offer MAY be withdrawn AT ANYTIME unless
there is something PAID/PROMISED.

3 persons who CANNOT GIVE CONSENT to a contract (if entered into, contract is voidable)
1. UNEMANCIPATED MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write

DEMENTED PERSON NOT exactly insane; difficult to distin-guish right from wrong

LUCID INTERVAL period when an INSANE has acquired SANITY temporarily, therefore, capacitated to
enter into a valid contract

2 RULES on persons WHO CANNOT GIVE CONSENT to a contract

1. Age of majority is 18 yrs old
2. A contract entered into by UNEMANCIPATED MINOR w/o parents/guardians consent is voidable,
except:
a. Minor MISREPRESENTS his age (estoppel)
b. Contract involves sale & delivery of necessities to minor

5 VICES OF CONSENT
- NOTE: When there is a DEFECTIVE CONSENT of EITHER of parties, contract is voidable;
Remedy:annulment of contract.

1. MISTAKE/ERROR
2. FRAUD/DECEIT
3. VIOLENECE
4. INTIMIDATION
5. UNDUE INFLUENCE

1. MISTAKE/ERROR
- wrong conception & lack of knowledge upon a thing

(2) MISTAKES W/C VITIATES CONSENT

It should refer to:
1. substance of thing that is the OBJECT of contract
2. conditions w/c MOVED either/both parties to enter into contract

4 RULES ON MISTAKE
1. Mistake to identity/qualifications of either of parties will vitiate consent ONLY when IT is
theprincipal cause of contract.
2. Simple mistake of account must be corrected.
3. No mistake if parties knew the risk/doubt affecting OBJECT of contract.
4. When one of parties is unable to read or the contract is in language not understood by him, &
mistake/fraud is alleged, the person enforcing the contract must FULLY explained the terms to him.

2. FRAUD/DOLO
- when through insidious words/machinations of one of the parties, INDUCED the other to enter into a
contract, & w/o them, he will not agree.

DOLO CAUSANTE

DOLO INCIDENTE

Serious

Not serious

cause induces party

ENTER into contract
make contract voidable

to

NOT the cause to enter into

contract
contract is
fordamages

valid;

liable

7 RULES OF FRAUD
1. Failure to disclose facts when these needs to be revealed, is a fraud.
2. Fraud should be SERIOUS (dolo causante) & SHOULD NOT be done by BOTH parties to make
contractvoidable.
3. Incidental fraud (dolo incidente) ONLY obliges person to PAY DAMAGES.
4. Usual exaggerations in trade, when other party know the real facts, is NOT FRAUD.
5. A mere expression of opinion is NOT FRAUD UNLESS made by an expert & the other party relies
on his special knowledge.
6. Misrepresentation made in good faith is NOT FRAUD but may constitute an error.
7. Misrepresentation by 3rd person DOES NOT vitiate consent UNLESS it created substantial mistake.

3. VIOLENCE
- serious/irresistible force is employed.

2 RULES ON VIOLENCE
1. Serious/irresistible force is employed w/c constitutes the reason why one entered into a contract.
2. Violence ANNULS obligation although it is DONE by 3 rd person not part of contract.

4. INTIMIDATION
- 1 of the parties is compelled by a reasonable & well-grounded fear of an imminent & grave evil upon
his person/property to give his consent.

3 RULES ON INTIMIDATION
1. Age, sex, & condition of person must used to determine the degree of intimidation.

2. Intimidation ANNULS obligation although it is DONE by 3 rd person not part of contract.

3. A threat to enforce ones claim (claim must be just & legal), DOES NOT vitiate consent.

VIOLENCE

INTIMIDATION

External

Internal

Physical contact/coercion

NO physical coercion; ONLY

MENTAL/MORAL coercion

5. UNDUE INFLUENCE
- a person takes improper advantage of his power over others will, depriving the other to
hisreasonable freedom of choice.

3 RULES ON UNDUE INFLUENCE

1. There is a person who takes improper advantage of his power over others will, depriving the other
to his reasonable freedom of choice.
2. Undue influence ANNULS obligation although it is DONE by 3rd person not part of contract.
3. To constitute undue influence, ff circumstances must be considered: (1) confidential, family,
spiritual, & other relations of parties; or (2) the aggrieved party is suffering from mental weakness; or
(3) ignorant; or (4) in financial distress.

SIMULATION OF CONTRACT
- process of INTENTIONALLY deceiving others by producing a contract not really exist (absolute
simulation), or w/c is different from true agreement (relative simulation).

2 KINDS OF SIMULATED CONTRACT

1. ABSOLUTE SIMULATION (the parties DO NOT intend to be bound at all)
- completely fictitious/make-believe; VOID
2. RELATIVE SIMULATION (parties conceal their true/real agreement)
- parties are bound to real/true agreement, EXCEPT:
a. contract prejudice 3rd person

b. purpose is contrary to law, morals, good customs, public order, public policy

7 REQUISITES OF OBJECT OF CONTRACT

1. Specific & certain
2. Services not contrary to law, morals, good customs, public order, public policy
3. Services/things must NOT be legally/physically impossible
4. Services/things are w/in commerce of man including future things
5. Rights are NOT TRANSMISSIBLE.
6. Determinate (kind) or determinable ( w/o the need of new contract/agreement)
7. NO contract be entered for future inheritance UNLESS law states

4 REQUISITES OF CAUSE
1. It is just & equitable.
2. It exists.
3. It is lawful.
4. It is true.

LESION
- inadequacy of cause (eg. insufficient price for thing sold)

RULES ON LESION
- Lesion DOES NOT invalidate contract, except there is:
a. Fraud
b. Mistake
c. Undue influence

2 FORM OF CONTRACTS

1. Contracts in writing
2. Contracts in a public instrument

1. Contracts w/c must be IN WRITING to be valid:

a. Donation of personal property exceeds P5000.
b. Agents authority in sale of land/any interest.
c. Contract of antichresis.
d Stipulation to pay interest on loans.
e. Stipulation to reduce common carriers extraordinary diligence & to limit its liability.

2. Contracts w/c must be IN A PUBLIC INSTRUMENT to be valid:

a. Donation of real property (both the donation & accep-tance).
b. Sale of real property.
c. Partnership where real property/rights is contributed; or when capital contribution exceeds
P3000.

REFORMATION OF INSTRUMENTS
- REMEDY in equity in w/c a written instrument is made/construed to the REAL intention of parties
when there is an error/mistake.

(5) CASES REFORMATION OF INSTRUMENT IS AVAILABLE

1. Mutual mistake of parties.
2. One party was mistaken & the other acted fraud.
3. One party was mistaken & the other knew/believed that the instrument did not state their REAL
agreement.
4. Ignorance, lack of skill, negligence, or bad faith of person drafting the instrument DOES NOT state
the TRUE INTENTION of parties
5. Two parties agree on mortgage/pledge of personal/real property BUT the instrument states the
property is sold ABSOLUTELY, or w/ the right to repurchase.

(3) NO REFORMATION OF INSTRUMENT WHEN:

1. Simple donation inter vivos where NO CONDITION is imposed.
2. Will.
3. Real agreement is VOID.

4 KINDS OF DEFECTIVE CONTRACTS

1. RESCISSIBLE valid until rescinded; has ALL essential requisites but because of injury/damage to
one of the parties, the contract may be rescinded.
2. VOIDABLE valid until annulled; has ALL essential requisites but because of defect in consent,
contract may be annulled.
3. UNENFORCEABLE cannot be sued/enforced unless ratified; no effect NOW but may take effect
upon ratification.
4. VOID NO effect at all; cannot be ratified/validated.

5 RESCISSIBLE CONTRACTS
1. Those entered by guardians & suffered LESION by more than of value of the value that is the
OBJECT.
2. Those agreed upon in representation of absentees, if the absentees suffered LESION.
3. Those undertaken in FRAUD of creditors when the creditors cannot further claim.
4. If entered into contract w/o knowledge/approval of litigants under litigation.
5. Contracts subjected to rescission declared by law.

3 VOIDABLE CONTRACTS
1. One of the parties INCAPABLE of giving consent to a contract.
2. Those where consent vitiates by vices of consent. (MFVIU)
3. Those agreed in the state of drunkenness/hypnotic spell.

3 UNENFORCEABLE CONTRACTS
1. Those entered in name of other person, or who acted BEYOND his powers.
2. Those who do not comply w/ the Statute of Frauds.
3. Both parties are incapable of giving consent to a contract.

7 VOID/INEXISTENT CONTRACTS
1. Those w/c are ABSOLUTELY simulated/fictitious.
2. Those w/c contemplate an impossible service.
3. Those whose OBJECT is outside the commerce of man.
4. Those whose CAUSE/OBJECT did not exist at time of tran-saction.
5. Those whose CAUSE/OBJECT/PURPOSE is contrary to law, morals, good customs, public order, or
public policy.
6. Those where INTENTION of parties to principal object CANNOT be ascertained.
7. Those expressly prohibited/declared VOID by law.