Article 1175. Usurious transactions shall be governed
Receipt without indication of particular
by special laws
Simple loan or murtuum – contract whereby one of the
parties delivers to another, money or other consumable
thing, upon the condition that the same amount of the
same kind and quality shall be paid. (Art 1193)
Usury – contracting or receiving interest in excess of the
amount allowed by law for the loan or use of money,
goods, chattels or credits.
Requisites for recovery of interest
1. The payment of interest must be expressly
stipulated (Art. 1956)
2. The agreement must be in writing
3. The interest must be lawful (Art. 1957)
Note: A stipulation for the payment of usurious interest
is void, as if there is no stipulation as to interest. The
lender may still recover the principal of the loan and
demand compliance with other terms of the contract
otherwise valid.
Art. 1176. The receipt of the principal by the creditor,
without reservation with respect to the interest, shall
give rise to the presumption that said interest has
been paid.
The receipt of a later installment of a debt
without reservation as to prior installments, shall
likewise raise the presumption that such installments
have been paid.
Meaning of presumption
 Inference of a fact not actually known arising
from its usual connection with another which is
known or proved. (p68 GB)
Two kinds of presumption
1. Conclusive presumption – cannot be
contradicted
2. Disputable (rebuttable) presumption – can be
contradicted by presenting proof to the
contrary (p69 GB)
When presumptions in Article 1176 do not apply
1. With reservation as the interest – where there
is reservation that no payment has been made
as to interest or prior installments; may be in
writing or verbally
2.
installment paid – receipt does not recite that it
was issued for a particular installment dues as
when the receipt is only dated
3. Receipt for a part of the principal – such a
receipt without mentioning the interest, implies
that the creditor waives his right to apply the
payment first to the interest and then to the
principal as permitted by Article 1253
4. Payment of taxes – there is no presumption
that previous taxes have been paid by the
payment of later ones
5. Non-payment proven – Art. 1176 is not
applicable where the non-payment f prior
obligations has been proven. A presumption
cannot prevail over a proven fact.
Art. 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 available to creditors for the satisfaction
of their claims
1. The exact fulfillment with the right to damages
2. Pursue leviable property of the debtor
3. Exercise all the rights and bring all the actions of
the debtor except those inherent in or personal
to him
4. Ask the court to rescind or impugn acts or
contracts which the debtor may have done to
defraud him when he cannot in any other
manner recover his claim (p71 GB)
Transmissibility of rights
All rights acquired in virtue of an obligation are
generally transmissible or assignable. The
exceptions are as follows:
1. Prohibited by law
a. Contract of partnership – two or more
persons bind themselves to contribute
money, property or industry to a common
fund, with the intention of dividing the
profits among themselves
 b. Contract of agency – person binds himself
to render some service or to do something
in representation or on behalf of another
c. Contract of commodatum – one of the
parties delivers to another something not
consumable so that the latter may use the
same for a certain time and return it
(gratuitous).
2. Prohibited by stipulation of the parties – when
prohibited by the stipulation of the parties, like
the stipulation that upon the death of the
creditor, the obligation shall be extinguished, or
that the creditor cannot assign his credit to
another
CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
Section 1- Pure and Conditional Obligations
Art. 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 contain a resolutory
condition shall also be demandable, without prejudice
to the effects of the happening of the event. (1163)
Meaning of pure obligation
 is one which is not subject to any condition and
no specific date is mentioned for its fulfillment
and is immediately demandable. (p76 GB)
Meaning of conditional obligation
 whose consequences are subject in one way or
another to the fulfillment of a condition.
Meaning of condition
 future and uncertain event, upon the
happening of which, the acquisition or
extinguishment of an obligation (or right)
subject to it depends.
Characteristics of a condition
1. Future and uncertain
2. Past but unknown
Note: A condition must not be impossible (Art. 1183)
Two principal kinds of condition
1. Suspensive condition (condition
precedent/antecedent) – the fulfillment of
which will give rise to an obligation (right). (p77
GB)
2. Resolutory condition (condition subsequent) –
the fulfillment of which will extinguish an
obligation (right). (p79 GB)
Distinctions between suspensive and resolutory
conditions
1. If the SC is fulfilled, obligation arises; if RC is
fulfilled, obligation is extinguished
2. If SC does not take place the juridical tie does
not appear; If RC does not take place the
juridical tie is consolidated
3. Until the SC takes place, existence of obligation
is a mere hope; until the RC takes place, its
effect flow, but over it hovers the possibility of
termination
When obligation is demandable at once
1. When it is pure (par. 1, Art. 1179)
2. When it is subject to a resolutory condition
3. When it is subject to a resolutory period
Past event unknown to the parties
 A past event cannot be said to be a condition
since the demandability of an obligation subject
to a condition depends upon whether the event
will happen or will not happen. (p79 GB)
Art. 1180. When the debtor binds himself to pay when
his means permit him to do so, the obligation shall be
deemed to be one with a period, subject to the
provisions of Article 1197.
Where duration of period depends upon the will of
debtor
Period – future and certain event upon the arrival of
which the obligation subject to it either arises or is
extinguished.
1. The debtor promises to pay when his means
permit him to do so – what depends upon the
debtor’s will is not whether he should pay or
not, but the duration of the period. If the
debtor and creditor cannot agree as to the
specific time for payment, the court shall fix the
same on the application of either party. (Art.
1197, par. 2)
2. Other cases – when the debtor binds himself to
pay:
a. Little by little
b. As soon as possible
c. From time to time
d. At any time I have the money
e. In partial payments
f. When I am in a position to pay
Art. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of
the event which constitutes the condition
Effect of happening of condition
1. Acquisition of rights
In obligations subject to a suspensive condition:
- Depends upon the happening of the event
which constitutes the condition
- If it does not take place and certain that it
won’t be fulfilled, as if conditional obligation
had never existed
- During pendency, creditor has only a mere
hope
(p81 GB)
2. Loss of right already acquired
In obligations subject to a resolutory condition:
-The happening of the event which constitutes
the condition produces the extinguishment or
loss of rights already acquired (p81 GB)
Art. 1182. When the fulfillment of the condition
depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the
obligation shall take effect in conformity with the
provisions of this Code.
Classification of conditions
1. As to effect
a. Suspensive – the happening of which
gives rise to the obligation
b. Resolutory – the happening of which
extinguishes the obligation
2. As to form
a. Express – condition is clearly stated
b. Implied – condition is merely inferred
3. As to possibility
a. Possible – condition is capable of
fulfillment, legally and physically
b. Impossible – condition is not capable of
fulfillment, legally and physically
4. As to cause or origin
a. Potestative – condition depends upon
the will of one of the contracting parties
b. Casual – depends upon the chance or
upon the will of a third person
c. Mixed – depends partly upon chance
and partly upon the will of a third
person
5. As to mode
a. Positive – consists in the performance
of an act
b. Negative – consists in the omission of
an act
6. As to numbers
a. Conjunctive – several conditions and all
must be fulfilled
b. Disjunctive – several conditions and
only one or some of them must be
fulfilled
7. As to divisibility
a. Divisible – susceptible of partial
performance
b. Indivisible – not susceptible of partial
performance
Potestative condition
- Suspensive in nature and depends upon the
sole will of one of the contracting parties
Where suspensive condition depends upon will of
debtor
1. Conditional obligation void – where the
potestative condition depends solely upon the
will of the debtor, the conditional obligation
shall be void (p83 GB)
2. Only the condition void – if the obligation is a
pre-existing one and does not depend for its
existence upon the fulfillment by the debtor of
the potestative condition, only the condition is
void leaving unaffected the obligation itself (p84
GB)
Where suspensive condition depends upon will of
creditor
- If the condition depends exclusively upon the
will of the creditor, the obligation is valid (p84
GB)
Where resolutory condition depends upon will of
debtor
- The obligation is valid although its fulfillment
depends upon the sole will of the debtor
(seller). The fulfillment of the condition merely
causes the extinguishment or loss of rights
already acquired. The debtor is naturally
interested in its fulfillment
Casual condition
- If the suspensive condition depends upon
chance or upon the will of a third person, the
obligation subject to it is valid (p85 GB)
Mixed condition
- The obligation is valid if the suspensive
condition depends partly upon chance and
partly upon the will of a third person (p85 GB)
Where suspensive condition depends partly upon will
of debtor
- The word “exclusive” (sole) makes it clear that
conditional obligations whose fulfillment
depends partly upon the will of the debtor and
partly upon the will of a third person, or upon
chance are perfectly valid.
Art. 1183. Impossible conditions, those contrary to
good customs or public policy and those prohibited by
law shall annul the obligation which depends upon
them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing
shall be considered as not having been agreed upon.
When Article 1183 applies
- Refers to suspensive conditions; applies only to
cases where the impossibility already existed at
the time the obligation was constituted. If the
impossibility arises after the creation of the
obligation, Article 1266 governs
Two kinds of impossible conditions
1. Physically impossible conditions – in nature of
things, cannot exist or cannot be done (p86 GB)
2. Legally impossible conditions – contrary to law,
morals, good customs, public order, or public
policy
Effect of impossible conditions
1. Conditional obligation void – both the
obligation and the condition are void. The
obligor knows his obligation cannot be fulfilled
2. Conditional obligation valid – condition is
negative, that is, not to do an impossible thing;
rendered pure and valid (p87 GB)
3. Only the affected obligation void – if the
obligation is divisible, the part thereof not
affected by the impossible condition shall be
valid (p88 GB)
4. Only the condition void – obligation is a pre-
existing obligation, and therefore, does not
depend upon the fulfillment of the condition
which is impossible, for its existence, only the
condition is void (p88 GB)
Art. 1184. The condition that some events happen at a
determinate time shall extinguish the obligation as
soon as the time expires or if it has become
indubitable that the event will not take place.
Positive condition
- Art. 1184 refers to positive (suspensive)
condition – the happening of an event at a
determinate time. The obligation is
extinguished:
1. As soon as the time expires without the
event taking place
2. As soon as it has become indubitable that
the event will not take place although the
time specified has not expired
(p89 GB)
Art. 1185. The condition that some event will not
happen at a determinate time shall render the
obligation effective from the moment the time
indicates has elapsed, or if it has become evident that
the event cannot occur.
If no time has been fixed, the condition shall
be deemed fulfilled at such time as may have probably
been contemplated, bearing in mind the nature of the
obligation.
Negative condition
- The above provision speaks of a negative
condition – that an event will not happen at a
determinate time. The obligation shall become
effective and binding:
1. From the moment time indicated elapsed
without the event taking place
2. Evident that the event cannot occur,
although the time indicated has not yet
elapsed
 Note: If not time is fixed, the circumstances
shall be considered to arrive at the intention of
the parties. (p90 GB)
Art. 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment
Constructive fulfillment of suspensive condition
3 requisites for the application of article:
1. The condition is suspensive
2. The obligor actually prevents the fulfillment of
the condition
3. He acts voluntarily
Note: the law does not require that the obligor acts
with malice or fraud as long as his purpose is to prevent
the fulfillment of the condition. (p90 GB)
Constructive fulfillment of resolutory condition
Article 1186 applies to an obligation subject to a
resolutory condition with respect to the debtor who is
bound to return what he has received upon the
fulfillment of the condition (Art. 1190) (p91 GB)
Art. 1187. The effects of a conditional obligation to
give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes
reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be
deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the
nature and circumstances of the obligation it should be
inferred that the intention of the person constituting
the same was different.
In obligation to do and not to do, the courts
shall determine, in each case, the retroactive effect of
the condition that has been complied with.
Retroactive effects of fulfillment of suspensive
condition
1. In obligations to give – becomes demandable
only upon the fulfillment of the condition.
However, once the condition is fulfilled, its
effects shall retroact to the day when the
obligation was constituted (p92 GB)
2. In obligations to do or not to do – no fixed rule
is provided. The courts are empowered by the
use of sound discretion, including the power to
decide that the fulfillment of the condition shall
have no retroactive effect or from what date
such retroactive effect shall take effect (p93 GB)
Retroactive effects as to fruits and interests in
obligations to give
1. In reciprocal obligations – there is no
retroactivity, because the fruits and interests
received during the pendency of the condition
are deemed to have been mutually
compensated (p94 GB)
2. In unilateral obligations – usually no retroactive
effect because they are gratuitous; debtor
receives nothing from creditor. Fruits and
interests belong to debtor unless from the
nature and other circumstances of the
obligation it should be inferred that the
intention of the person constituting the same
was different (p94 GB)
Art. 1188. The creditor may, before the fulfillment of
the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same
time he has paid by mistake in case of suspensive
condition.
Rights pending fulfillment of suspensive condition
1. Rights of creditor – take appropriate actions for
preservation of his right; go to court to prevent
alienation or concealment of the property the
debtor has bound himself to deliver
2. Rights of debtor – entitled to recover what he
has paid by mistake prior to the happening of
the suspensive condition. This is a case of
solution indebiti. The payment before
fulfillment must be by mistake. In any case, he
cannot recover what he has prematurely paid
once the suspensive condition is fulfilled.
Art. 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an
obligation to give, the following rules shall be
observed in case of the improvement, loss or
deterioration of the thing during the pendency of the
condition:
1. If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
 2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it
is understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such as way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates without the fault
of the debtor, the impairment is to be borne
by the creditor;
4. If it deteriorates through the fault of the
debtor, the creditor may choose between the
rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
5. If the thing is improved by its nature, or by
time, the improvement shall insure to the
benefit of the creditor;
6. If it is improved at the expense of the debtor,
he shall have no other right than that granted
to the usufructuary.
Requisites for application of Article 1189
- Applies only if:
1. The obligation is a real obligation
2. The object is a specific or determinate thing
3. The obligation is subject to a suspensive
condition
4. The condition is fulfilled
5. There is loss, deterioration, or improvement
of the thing during the pendency of the
condition
Kinds of loss
Loss in civil law may be:
1. Physical loss – thing perishes as when a
house is burned and reduced to ashes
2. Legal loss – thing goes out of commerce or
becomes illegal
3. Civil loss – thing disappears that its
existence is unknown; or even if known,
cannot be recovered, whether as a matter
of fact or of law
Rules in case of loss, deterioration, or improvement of
thing during pendency of suspensive condition
1. Loss of thing without debtor’s fault (p97 GB)
2. Loss of thing through debtor’s fault (p97 GB)
3. Deterioration of thing without debtor’s fault
(p97 GB)
4. Deterioration of thing through debtor’s fault
(p98 GB)
5. Improvement of thing by nature or by time –
thing is improved when its value is increased by
nature or by time or at the expense of the
debtor or creditor (p98 GB)
6. Improvement of thing at expense of debtor
(p98 GB)
Usufruct is the right to enjoy the use and fruits of a
thing belonging to another. (p99 GB)
Art. 1190. When the conditions have for their purpose
the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall
return to each other what they have received.
In case of loss, deterioration or improvement
of the thing, the provision which, with respect to the
debtor, are laid down in the preceding article shall be
applied to the party who is bound to return.
As for obligations to do and not to do, the
provisions of the second paragraph of Article 1187
shall be observed as regards the effect of the
extinguishment of the obligation.
Effects of fulfillment of resolutory condition
1. In obligation to give – if fulfilled, the obligation
is extinguished and the parties are obliged to
return to each other what they have received
under the obligation
a. There is a return to the status quo; effect of
the fulfillment of the condition is
retroactive
b. In case the thing to be returned is legally in
the possession of a third person who did
not act in bad faith, the remedy of the party
entitled to restitution is against the other
c. The obligation of mutual restitution is
absolute. It applies not only to the thing
received but also to the fruits and interests.
d. In obligations to give subject to suspensive
condition, the retroactivity admits
exceptions according as the obligation is
bilateral or unilateral
(p100 GB)
2. In obligations to do or not to do – in such
obligations, the courts shall determine the
retroactive affect of the fulfillment of the
resolutory condition as in the case where the
 condition is suspensive. The courts in the
exercise of discretion may even disallow
retroactivity, taking into account the
circumstances of each case.
Applicability of Article 1189 to party with obligation to
return (p100 GB)
Art. 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 a third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and
the Mortgage Law.
Kinds of obligation according to the person obliged
1. Unilateral – when only one party is obliged to
comply with a prestation (p102 GB)
2. Bilateral – both parties are mutually bound to
each other. Both parties are debtors and
creditors of each other (p102 GB)
Remedies in reciprocal obligations
1. Choice of remedies – in case one of the obligors
does not comply with what is incumbent upon
him:
a. Action for specific performance of the
obligation with damages or
b. Action for rescission of the obligation also
with damages
Rescission is the remedy available to an obligee
when the obligor fails to comply with his
obligation, to abrogate their contract as if it was
never entered into, with the right to recover
damages
2. Remedy of rescission for non-compliance – the
principal action for rescission for non-
performance under Article 1191 must be
distinguished from the subsidiary action for
rescission by reason of lesion or damage and
from cancellation of a contract based on defect
in the consent and not on violation by a party of
his obligation. (p103 GB)
Court may grant guilty party term for performance
- Court shall order the rescission claimed unless
there should be just case for granting the party
in default a term or period for the performance
of his obligation. This exception applies only if
the guilty party is willing to comply with his
obligation but needs time
Remedies are alternative
- Remedies of the injured party are alternative
and not cumulative only to the exception in par.
2 where he may also seek rescission after ha
has chosen fulfillment if the latter should
become impossible. (p104 GB)
Limitations on right to demand rescission
1. Resort to the courts – the injured party has to
resort to the courts to assert his rights judicially.
No person can take justice or the law in his own
hands and decide by himself what are his rights
in the matter
2. Power of court to fix period – court has
discretionary power to allow a period within
which a person in default may be permitted to
perform his obligation if there is a just cause for
giving time to the debtor
3. Rights of third person – if the subject matter of
the obligation is in the hands of a third person
who acted in good faith, rescission is not
available as a remedy.
4. Substantial violation – rescission will not be
granted for slight breaches of contract; the
violation should be substantial as to defeat the
object of the parties in making the agreement.
5. Waiver of right – right to rescind may be
waived, expressly or impliedly.
Rescission without previous judicial decree
1. Where automatic rescission expressly
stipulated – the parties may validly enter into
an agreement that violation of the terms of the
contract would cause cancellation thereof even
 without judicial intervention or permission.
Where the contract itself contains such a
stipulation, the right to rescind is not “implied”
but expressly recognized by the parties.
2. Where contract still executory – where there is
no performance yet by both parties, but one is
ready and willing to comply and the other is
not, the willing party may rescind the contract
without a previous judicial decree of rescission

Art. 1192. In case both parties have committed a

breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.

Where both parties are guilty of breach

The above article contemplates 2 situations:

1. First infractor known – one party violated

his obligation; subsequently, the other also
violated his part of the obligation. The
liability of the first infractor should be
equitably reduced
2. First infractor cannot be determined – one
party violated his obligation followed by the
other but it cannot be determined which
was the first infractor. The contract shall be
deemed extinguished and each shall bear
his own damages

(p107 GB)