As a general rule, contracts are consensual. Hence, they are generally perfected by mere consent. Once perfected, contracts become obligatory regardless of whatever form they may have been entered into, so long as all the essential requisites for their validity are present.
In general, a contract is perfected only when all of the following requisites are present: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance must be absolute. If a party offers a qualified acceptance, the same is considered a counter-offer.
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.
The contracting parties are free to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. This is the principle of autonomy.
Novation takes place when there is an irreconcilable incompatibility between the old and the new obligations.
There are three ways to constitute novation, namely:
(1) By changing the object or principal conditions;
(2) By substituting the person of the debtor; or
(3) By subrogating a third person in the rights of the creditor.
Compensation is an offsetting of obligations between two persons who in their own right are creditors and debtors of each other.
There are three kinds of compensation, namely: (a) legal compensation, (b) voluntary or conventional compensation; and (c) judicial compensation.
A merger or confusion of the rights of creditor and debtor in the same person results in the extinguishment of the obligation. A merger of rights benefits the guarantors.
Condonation or remission is an act of liberality by the creditor who, without receiving any equivalent, renounces the enforcement of the debtor’s obligation resulting in its partial or total extinguishment. As condonation is essentially gratuitous, it is subject to the rules on inofficious donations. Thus, remission has to be accepted by the obligor.
Remission may be either be express or implied. For express condonation, it must be done in accordance with the forms of donation. Unless proved to the contrary, there is implied renunciation when the creditor voluntarily delivers to the debtor the private document evidencing the credit.