Case Summary (G.R. No. 7721)
Subsequent Ratification and Conditions
On January 11 and July 17, 1909, the Yulos acknowledged increments in the account, culminating in a confirmed balance of P253,445.42. On August 12, 1909, six heirs jointly reaffirmed that debt, agreed to five annual installments of P50,000 (the last P53,445.42) at 10% interest, and stipulated that default in any installment would mature the entire debt immediately. They bound themselves solidarily and conditioned binding effect on ratification by Mariano Yulo—an unfulfilled resolutory condition permitting Inchausti & Company to demand full payment without delay.
Compromise with Three Solidary Debtors
While suit was pending against Gregorio, on May 12, 1911, Francisco, Manuel, and Carmen Yulo executed a compromise reducing their shared debt to P225,000, lowering interest to 6% effective March 15, 1911, and restructuring repayment into eight installments through June 30, 1919. They agreed that failure to pay any installment within two years would accelerate the entire obligation and impose 15% interest on past‐due amounts. They also pledged to support Inchausti & Company’s ongoing action against Gregorio and Pedro Yulo.
Lower Court’s Ruling and Assignments of Error
The Court of First Instance held the action premature and dismissed it without prejudice, reasoning that the compromise novated the 1909 instrument as to all solidary debtors, requiring a new suit later. Inchausti & Company appealed, assigning three errors: treating the May 12 contract as novation, dismissing the action, and denying new trial.
Solidary Obligations and Creditor’s Right to Sue
Under Articles 1137 and 1144 of the Civil Code, solidary debtors are each liable for the entire obligation. The Supreme Court affirmed the creditor’s right to sue Gregorio alone, even though co‐debtors had negotiated distinct terms. Article 1140 expressly permits solidarity despite differing conditions or payment periods among debtors.
Novation and Incompatibility Analysis
Article 1204 requires express declaration or total incompatibility to novate an existing obligation. The 1911 compromise neither expressly extinguished the 1909 mortgage nor conflicted in all respects. Instead, it expressly preserved Inchausti & Company’s right to press the original debt against Gregorio, obliging the three signatories to assist in prosecution. Precedent holds that altering payment term and adding collateral obligations without clear intent to extinguish does not effect novation.
Effect of Remission on All Solidary Debtors
Article 1143 of the Civil Code provides that remission of any portion of a solidary debt in favor of some debtors benefits all. Inchausti & Company conceded that the reduction from P253,445.42 to P225,000 in the May 12 compromise extended to Gregorio. Hence, although not party to that contract, he enjoys the same remission.
Prematurity of Demands and Partial Defenses
Article 1148 permits a solidary debtor to invoke defenses personal to other debtors “with
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Facts of the Case
- Teodoro Yulo of Iloilo borrowed from Inchausti & Company to cultivate his haciendas in Occidental Negros.
- Upon his death (April 9, 1903), his widow and nine children continued the current account, accruing a balance of about ₱200,000.
- On June 26, 1908, six children (Gregorio, Pedro, Francisco, Manuel, Mariano, and Carmen) acknowledged a debt of ₱203,221.27 at 10% interest and mortgaged six-ninths of their rural estates plus urban properties and credits as security.
- On August 12, 1909, five adult siblings (excluding the mentally incompetent Teodoro and minors Concepcion and Jose) reaffirmed a debt of ₱253,445.42 at 10% interest, payable in five annual installments of ₱50,000 each (the last ₱53,445.42), beginning June 30, 1910, with solidary liability and acceleration on default.
- On May 12, 1911, Francisco, Manuel, and Carmen executed a compromise: they reduced their joint debt to ₱225,000 at 6% interest from March 15, 1911, payable in eight installments (first ₱20,000 on June 30, 1911; remaining ₱30,000 annually through June 30, 1919), with penalties and acceleration clauses on missed payments.
Procedural History
- Inchausti & Co. sued Gregorio Yulo alone on March 27, 1911, in the Court of First Instance of Iloilo for ₱253,445.42 plus accrued interest of ₱42,944.76.
- Gregorio’s defenses: (1) usurious compound interest; (2) unmet conditions of court approval and Mariano’s ratification; (3) prior claims in probate proceedings; and (4) novation by the May 12, 1911 compromise.
- The trial court dismissed the action—allowing Inchausti & Co. to bring a future suit for proportional shares—and awarded costs to Gregorio.
- Inchausti & Co. appealed to the Supreme Court, assigning errors regarding novation, judgment, and denial of a new