Article 1175.

Usurious transactions shall

be governed by special laws.
Simple Loan or Mutuum
It is a contract whereby one of the
parties delivers to another, money or
other consumable things, upon the
condition that the same amount of the
same kind and quality shall be paid. It
may be gratuitous or with a stipulation
to pay interest. (Art. 1933)
Usury
Is contracting for or receiving interest in
excess of the amount allowed by law
for the loan and use of money, goods,
chattels, or credits. However, usury is
now legally non-existent according to
Central Bank Circular No. 905. Parties
are free to stipulate any amount but
not an absolute right to charge
iniquitous or unconscionable interest.
Requisites for recovery of interest:
i. The payment of interest must be expressly stipulated
[Art.1956]
ii. The agreement must be in writing; and
iii. The interest must be lawful [Art. 1957]
Article 1177. The creditors, after having pursued the property in possession
of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are inherent
in his person; they may also impugn the acts which the debtor may have
done to defraud them.

Remedies of the creditors for the satisfaction of their claims:

i. exact fulfillment (specific performance) with the right to damages;
ii. pursue the leviable( not exempt from attachment under the law) property
of the debtor; or
iii. After pursuing the properties in possession of the debtor, exercise all
rights like the right to collect, right to redeem except intransmissible rights,
personal to the debtor such as the right to vote, etc.
Different Kinds of Obligations:
I.Primary Classification
a. Pure and conditional obligations;
b. Obligations with a period;
c. Alternative and facultative
obligations;
d. Joint and solidary obligations;
e. Divisible and indivisible obligations;
and
f. Obligations with a penal clause.
a.Pure and Conditional Obligations
Article 1179. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown to
the parties, is demandable at once.
Every obligation which contains a resolutory condition shall
also be demandable, without prejudice to the effects of the
happening of the event.

A pure obligation is one which is not subject to a suspensive or

resolutory condition, and no specific date is mentioned for its
fulfillment, thus, immediately demandable.
A Conditional obligation is an obligation that is
subject to a condition, either a suspensive or
resolutory one.
A condition is a future and uncertain event, or
past but unknown event, upon the happening of
which, the effectivity or extinguishment of an
obligation subject to it depends.
 2 Kinds of Condition:
1. Suspensive - the happening of which will give rise to an
obligation.
2. Resolutory - the happening of which will extinguish an
obligation.

For Past but Unknown Events

This pertains to knowledge to be acquired in the future about a past event
which at present is unknown to the parties. Only then, that the past event
becomes uncertain.
Other Principles:
i. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional
obligation shall be void. This is called potestative
condition. Its compliance is left to the will of the
debtor and cannot be easily demanded. This will
grant escape to debtors to choose not to perform his
obligation. Hence, it is void.

Example: I will pay you if I want.

ii. When the condition depends on the will of the creditor, the
obligation is valid as the fulfillment depends on the beneficence of
the creditor.

Example: I will pay you when you say so.

iii. Impossible conditions, those contrary to law, morals, good

customs, public order or public policy shall annul the obligations
which depend on them. Both the condition and obligation are void
as the debtor has no intention to be bound.

Example: I will pay you P5, 000 if the sun will not rise within 24
hours.
Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment. This is the
Doctrine of Constructive Fulfillment.

Three (3) Requisites:

1. It is a suspensive condition;
2. The obligor/debtor actually prevents the fulfillment of the
condition; and
3. It was a voluntary act.

Malice or fraud is not necessary.

Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and

the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible...
...The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
Kinds of obligations according to the person obliged:
a. Unilateral obligations- Only one party is obliged to perform.
Ex. Donation
b. Bilateral obligations-Both parties are bound to perform. They are
both debtors and creditors of each other.

2 Kinds:
1. Reciprocal Obligations- the tie arise from the same cause.
2. Non-reciprocal Obligations- there is no correlative performance
on both parties. The performance of one does not give rise to the
performance of the other.
 Remedies in Reciprocal Obligations:
If one of the parties failed to comply, the innocent and willing party
may:
a. File an action for specific performance WITH damages; or
b. File an action for rescission WITH damages.

Article 1191 is a principal action for rescission for non-performance of the obligation unlike
the rescission under Article 1381 which is a subsidiary action on account of lesion or
economic damage. The aggrieved must resort to court for relief or the latter may fix the
period for compliance. It is a judicial rescission. However, if the subject-matter of the
obligation has been transferred to a third person in good faith, rescission is not practicable.
This does not apply also to slight breaches; the violation must be significant to defeat the
purpose of the contract. Nevertheless, it is waivable.
Judicial Decree is Unnecessary When:
i. Parties stipulated that right to rescind is valid without the need
of judicial determination. A written notice of rescission is
necessary. If any of the parties objected to the extrajudicial
rescission, the court may still determine.

ii. The contract is still executory but one of the parties is willing
to comply. The aggrieved party may rescind the contract without
judicial decree. No stipulation on automatic rescission is
necessary.
If both parties are guilty of breach:
i. If the first infractor is known. The liability of one caused the
liability of the other. Hence, the first infractor’s liability is
equitably reduced.
ii. If the first infractor cannot be determined. Each of the parties
shall bear his own damages.
b. Obligations with a Period
Article 1193. Obligations for whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily
come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by the
rules of the preceding Section.
In an obligation with a period, the legal effects may arise
(suspensive) or extinguish (resolutory) upon the arrival of the period
which is a future and certain event e.g. 2021, Christmas Day.

More Examples:
a. I will provide for you until you die.
b. I will reimburse you 2 months from now.
c. I will pay you when my means permit me
to do so. (Art. 1180)
d. I will pay you as soon as possible.
e. I will pay you little by little.
For examples c, d, and e, the debtor binds himself
to pay except that the duration is not indicated.
Legal Periods under Admin. Code of 1987

• Year- 12 calendar months

• Month- 30 days unless it refers to a specific
month
• Day- 24 hours
• Night- Sunset to sunrise
Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be
changed by them.
2 kinds of period:
i.Judicial period- when court fixes the period for the parties; and
ii.Contractual period- when parties stipulate the period for the
performance of obligation.

General Rule: The courts have no right to fix period for the parties when
the latter did not stipulate any.

Exception: The court may carry out the intention of the parties, OR fix the
duration of the period when it depends on the will of the debtor.
c. Alternative and Facultative Obligations
Article 1199. A person alternatively bound by different prestations shall
completely perform one of them. The creditor cannot be compelled to receive
part of one and part of the other undertaking.
Principles governing Alternative Obligations:
i. There are several prestations due but the performance or delivery of
one is sufficient;
ii. The right of choice generally belongs to the debtor unless expressly
granted to the creditor;
iii. The debtor cannot choose the impossible or unlawful prestation;
iv. The alternative nature is converted to a simple obligation if only one
prestation is practicable;
v. Once a choice is made, it must be communicated to the creditor;
Principles governing Alternative Obligations:
vi. When the choice is communicated, the obligation ceases to be
alternative but becomes a simple one;
vii. If the debtor cannot make a choice due to creditor’s acts, the
former may rescind with damages;
viii. If the debtor failed to deliver due to his fault, the damages is
equivalent to the value of the last thing which disappeared;
ix. If the choice is granted to the creditor, it ceases to be alternative
from the time it is communicated to the debtor; and
x. When the right of choice belongs to the creditor, but:
a. One of the things is lost thru fortuitous event, the creditor
may choose from whatever remains;
b. If in the same case, the loss is caused by debtor’s fault, the
creditor may choose from what remains or the value of the
lost thing, both with right to damages;
c. If all are lost thru debtor’s fault, the price of any of them
according to creditor’s choice plus damages is paid.
Article 1206. When only one prestation has been agreed upon,
but the obligor may render another in substitution, the
obligation is called facultative.

The loss or deterioration of the thing intended as a substitute,

through the negligence of the obligor, does not render him
liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
negligence or fraud.
In Facultative Obligations, only one prestation is due but
the debtor, by his choice, may render another as
substitute.
The right of choice belongs to the debtor only. Once the
substitution is made, the facultative nature ceases to be
one and is converted to a simple obligation.
Effect of loss of things :
a.Before Substitution
If the thing is lost thru fortuitous event, the liability is extinguished.
If the thing is lost thru debtor’s fault, he is liable with damages.
If the substitute is lost with or without debtor’s fault, he is not liable and
will not affect the obligation.

b.After Substitution
If the substituted thing is lost thru fortuitous event, the liability is
extinguished.
If the substituted thing is lost thru debtor’s fault, he is liable with damages.
If the principal thing is lost with or without debtor’s fault, he is not liable
and will not affect the obligation.
d. Joint and Solidary Obligations
Article 1207. The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation
requires solidarity.
2 Kinds of obligations according to number of
parties:
1.Individual – When there is only one (1) obligor and one (1)
obligee; and
2.Collective- When there are two or more obligors and two or
more obligee. It is presumed to be joint in nature.
Joint v. Solidary
Joint obligation is a kind of obligation when one of two or more
obligors in a joint obligation is only liable for his or her portion
of the performance.
Solidary obligation is an obligation under which any of two or
more obligors can be held liable for the entire performance (as
payment of a debt).

Solidary obligation is similar to joint and several liability in

common law
Words Used to Words Used to
indicate Joint indicate Solidary
Liability: Liability:
Mancomunada Jointly and/or severally
Mancomunadamente Solidaria
Pro rata In Solidum
Proportionately Together and/or separately
We promise to pay Individually and/or collectively
Juntos o separadamente
I promise to pay
Principles governing Joint and Solidary Obligations:
i. Solidarity is not presumed;
ii. In joint indivisible obligation, the creditors’ rights will be
prejudiced only by collective acts. Thus, the debt must be
proceeded against all the debtors. If one is insolvent, the rest
are not liable for his share. The indivisibility of the obligation
[e.g. car] does not give rise to solidarity and vice versa;
iii. A solidary creditor cannot assign his rights without the
consent of all other creditors.
e. Divisible and Indivisible Obligations
Article 1223. The divisibility or indivisibility of the things that are the
object of obligations in which there is only one debtor and only one
creditor does not alter or modify the provisions of Chapter 2 of this
Title.

A divisible obligation is one the object of which is capable of

partial fulfillment while an indivisible obligation is otherwise. The
determining test is not the prestation but the intention of the
parties or the purpose of the contract.
Indivisibility may be based on the following:
i.Legal Indivisibility. When the law specifically prescribed so.
ii.Conventional Indivisibility. When the parties stipulate the prestation to indivisible albeit
divisible by nature.
iii.Natural Indivisibility. When the prestation by its nature is indivisible e.g. singing of a
song, delivery of a car.

Example of Divisible Obligation: Example of Indivisible Obligation:

- When the obligor must finished the - When the obligor is bound to deliver
painting of room in seven (7) days. one unit of cellular phone.
- When the obligation to pay back is in - When somebody is promised a song
installments. to be sung on a wedding day.
- When every resident was promised a - When the debtor is obliged to pay his
food ration of five (5) kilos of rice per P50,000 debt in full at once.
week.
f. Obligations with a Penal Clause
Article 1226. In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of
interests in case of noncompliance, if there is no stipulation to the
contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay
the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
2 kinds of Obligations under Art. 1226:
1. Principal Obligation- Its existence and validity do not depend on another
obligation.
2. Accessory Obligation- It cannot stand alone as it depends on a principal
obligation.

An obligation with a penal clause consists of an accessory obligation

to pay a stipulated indemnity in case of breach in the principal obligation. It
has a coercive power to ensure compliance or fulfillment of the obligation.

Will the stipulated penalty substitute for damages and

interests?
As a general rule, the penalty substitutes for damages and interests
upon breach of the principal obligation.
Principles governing Penal Clause:
i. Creditor may STILL recover damages when:
a. It is stipulated by the parties;
b. Obligor refuses to pay penalty thus legal interest on top may be
recovered; or
c. Obligor is guilty of fraud.
ii. Penalty may be enforced when stipulated but may be reduced when
unconscionable or in cases of partial performance;
iii. Proof of actual damage is not necessary to enforce penalty.
iv. The nullity of the penal clause does not nullify the principal obligation; the
nullity of the latter nullifies the former.
v. Penalty is not substitute for performance unless expressly granted.
Case: Ronnie borrowed P50,000 from Mike payable
after 5 months. Five months have lapsed and Ronnie
failed to make good payments. Is Ronnie considered in
delay and liable for interest?
Justify your YES or NO.