Inchausti & Co.

vs Yulo

Agreement Date:
June 26, 1908 – Whereby all admitted to their indebtedness

August 12, 1909 – Tamang edad na si Concepcion

May 12, 1911 – After nung noncompliance ni Mariano

Inchausti & Co. – nagreklamo

Gregorio Yulo – nireklamo, Principal representative of Teodoro Yulo after his death,
Teodoro Yulo – father, a property owner of Iloilo.

Gregoria Regalado – widowed wife of Teodoro

Hijos de T. Yulo – Account name nung hinuhulugan nila para sa utang.

Remaining of the marriage following legitimate children:

1 Pedro (one of the five)

2 Francisco (one of the five), 1911

3 Teodoro (Mentally incompetent)

4 Manuel (one of the five), 1911

5 Gregorio (principal representative)

6 Mariano (one of the five), naging taga-Bacolod, hindi nagcomply

7 Carmen (one of the five), 1911

8 Concepcion (Minor), naging nasa tamang edad noong 1909

9. Jose Yulo y Regalado (Minor)

ANALYSIS:

1. This suit is brought for the recovery of a certain sum of money. (sisingilin ng Inchausti & co.)

2. After his death continued with his widow and children.

3. Reason for sum of money borrowed:

for the exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had been
borrowing money from the firm of Inchausti & Company under specific conditions

4. On April 9, 1903; Teodoro Yulo died testate (may valid will and testament) and for the execution of the
provisions of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of
the latter.

5. Teodoro thus left a widow, Gregoria Regalado, who died on October 22nd of the following year, 1904
6. Natira na lang yung mga anak. Of these children Concepcion and Jose were minors, while Teodoro was mentally
incompetent

7. At the death of their predecessor, his widow and children held the conjugal property (parehas yung mag-asawa
ang nagmamay-ari nung property) in common and at the death of this said widow.

8. The children preserved the same relations under the name of Hijos de T. Yulo continuing their current account
with Inchausti & Company in the best and most harmonious reciprocity until said balance amounted to two hundred
thousand pesos. In for the payment of the disbursements of money which until that time it had been making in favor
of its debtors, the Yulos.

9. First. Gregorio Yulo, for himself and in representation of his brothers Pedro, Francisco, Manuel, Mariano, and
Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness to
Inchausti & Company

10. in order to secure the same with interest thereon at 10 percent per annum:

 they especially mortgaged an (1) undivided six-ninth of their thirty-eight rural properties, (2) their
remaining urban properties, lorchas (sailing ship), and (3) family credits which were listed,
 obligating themselves (1) to make a list of inventory and to describe in due form all the said
properties, as well as (2) to cure all the defects which might prevent the inscription of the said
instrument in the registry of property and finally (3) to extend by the necessary formalities the
aforesaid mortgage over the remaining three-ninths part of all the property and rights belonging to
their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose.

11. Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of Inchausti & Company in
these terms: “With your favor of the 2d inst. we have received an abstract of our current account with your important
firm, closed on the 31st of last December, with which we desire to express our entire conformity as also with the
balance in your favor of P271,863.12."

12. On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to
P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of
the same month and year. Regarding this conformity a new document evidencing the mortgage credit was
formalized.

13. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother (1) Manuel Yulo, and in
their own behalf (2) Pedro Yulo, (3) Francisco Yulo, (4) Carmen Yulo, and (5) Concepcion Yulo, the latter being of
age at the time (tamang edad na si Concepcion), executed the notarial instrument (Exhibit X). Through this, the
said persons, including Concepcion Yulo ratified all the contents of the prior document of June 26, 1908 ,
severally and jointly acknowledged and admitted their indebtedness to Inchausti & Company for the net
amount P253,445.42 which they obligated themselves to pay, with interest at 10% per annum, in five installments at
the rate of fifty thousand pesos (P50,000), except the last, this being P53,445.42, beginning June 30, 1910,
continuing successively on the 30th of each June until the last payment on June 30, 1914.

14. they expressly stipulated the following (NEXT AGREEMENT NA ATA):

 the noncompliance of any of the other obligations which by the present document and that of June 26,
1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the said
installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti & Company may
exercise at once all the rights and actions which to them appertain in order to obtain the immediate and
total payment of our debt, in the same manner that they would have so done at the maturity of the
said installments.
  It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the present
week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be
binding on Messrs. Inchausti & Company who can make use of their rights to demand and obtain
immediate payment of their credit without any further extension or delay, in accordance with what we
have agreed.

15. This instrument was neither ratified nor confirmed by Mariano Yulo. :’(

16. Therefore, March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First Instance of
Iloilo, against Gregorio Yulo for the payment of the said balance due with aggregating interest.

17. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor Inchausti &
Company another notarial instrument in recognition of the debt and obligation of payment in the following
terms (NEXT AGREEMENT)

 First, the debt is reduce for them to (P225,000);

 Second, the interest is likewise reduced for them to 6 percent per annum, from March 15, 1911;
 third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest
of P30,000 each on the same date of each successive year until the total obligation shall be finally and
satisfactorily paid on June 30, 1919
 if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of
the said partial payment together with its interest shall bear interest at the rate of 15 per cent per
annum from the date of said maturity, without the necessity of demand until its complete payment.
 if during two consecutive years the partial payments agreed upon be not made, they shall lose the right
to make use of the period granted to them for the payment of the debt or the part thereof which remains
unpaid, and that Messrs. Inchausti & Company may consider the total obligation due and demandable,
and proceed to collect the same together with the interest for the delay (15%)

18. it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by way of
compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special
proceedings (Original Agreement).

19. However in the sixth clause that "Inchausti & Company should include in their suit brought in the Court of
First Instance of Iloilo against Don Gregorio Yulo, his brother and joint co-obligee, Don Pedro Yulo, and they
will procure by all legal means and in the least time possible a judgment in their favor against the said Don Gregorio
and Don Pedro, sentencing the later to pay the total amount of the obligation acknowledged by them in the
aforementioned instrument of August 12, 1909 (Agreement after nawala na ang parents); with the understanding
that if they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doña Carmen Yulo
may appoint an attorney to cooperate with the lawyers of Inchausti & Company in the proceedings of the said case."

20. (Present day na ata) On July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses;

 that an accumulation of interest had taken place and that compound interest was asked for the Philippine
currency at par with Mexican (Di ko gets to)
 that in the instrument of August 21, 1909, two conditions were agreed one of which ought to be approved
by the Court of First Instance, and the other ratified and confirmed by the other brother Mariano Yulo,
neither of which was complied with.
 that with regard to the same debt claims were presented before the commissioners in the special
proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were
dismissed, pending the present suit;
 that the instrument of August 12, 1909, was novated (the substitution of a new contract in place of an
old one) by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo.
21. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the
plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the plaintiff
pay the costs." (B. of E., 21.)

22. The plaintiff appealed from this judgment:

 that the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August
12, 1909, denying the motion for a new trial.
 That the court erred in rendering judgment in favor of the defendant.
 And that the court erred in denying the motion for a new trial.

23. "No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti &
Company an amount of money, the object of this action, namely, P253,445.42".

24. "The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same is
owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff
had a right to bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of
August 12, 1909; but the defendant says that the plaintiff has no right to sue him alone, since after the present
suit was brought, the plaintiff entered into a compromise with the other conjoint and solidary debtors , the
result being the new contract of May 12, 1911, by virtue of which the payments were extended, the same
constituting a novation of the contract which gave him the same privileges that were given his conjoint and solidary
codebtors. This (the judge concludes) is the only question brought up by the parties."

25. Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor regarding
the lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which
the appellee still insists in his brief for this appeal; although it will not be superfluous to state the doctrine that a
condition, such as is contained in the sixteenth clause of the said contract (third point in the statement of
facts), is by no means of suspensive but a resolutory condition;

The effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and
confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti & Company at
liberty, as stipulated, "to make use of its rights to demand and obtain the immediate payment of its credit."

26. The only question indicated in the decision of the inferior court involves, however, these others:

 whether the plaintiff can sue Gregorio Yulo alone, there being other obligors
 whether Gregorio lost this right by the fact of its having agreed with the other obligors in the reduction of
the debt, the proroguing of the obligation and the extension of the time for payment, in accordance
with the instrument of May 12, 1911.
 whether this contract with the said three obligors constitutes a novation of that of August 12, 1909,
entered into with the six debtors who assumed the payment of two hundred fifty-three thousand and some
odd pesos, the subject matter of the suit
 if not so, whether it does have any effect at all in the action brought, and in this present suit.

First Defense for plaintiff appealed. It cannot be doubted that, the debtors having obligated themselves in solidum,
the creditor can bring its action in toto (as a whole) against any one of them, in as much as this was surely its
purpose in demanding that the obligation contracted in its favor should be solidary having in mind the principle of
law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound
to perform in full the undertaking which is the subject matter of such obligation."

Second, Even though the creditor may have stipulated with some of the solidary debtors diverse installments
and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen
Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity
stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that "solidarity
may exist even though the debtors are not bound in the same manner and for the same periods and under the same
conditions.

Third, there can also be no doubt that the contract of May 12, 1911, does not constitute a novation of the former
one of August 12, 1909, with respect to the other debtors who executed this contract, or more concretely, with
respect to the defendant Gregorio Yulo: First, because "in order that an obligation may be extinguished by another
which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be
incompatible in all points"

The instrument of May 12, 1911, far from expressly declaring that the obligation of the three who executed it
substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said
obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and odd pesos sued for exists ,
stipulating that the suit must continue its course and, if necessary, these three parties who executed the contract of
May 12, 1911, would cooperate in order that the action against Gregorio Yulo might prosper (7th point in the
statement of facts), with other undertakings concerning the execution of the judgment which might be rendered
against Gregorio Yulo in this same suit. "It is always necessary to state that it is the intention of the contracting
parties to extinguish the former obligation by the new one"

There exist no incompatibility between the old and the new obligation as will be demonstrated in the resolution
of the last point, and for the present we will merely reiterate the legal doctrine that “an obligation to pay a sum of
money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and
adding other obligations not incompatible with the old one.

Legally, it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August 12,
1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco, Manuel, and
Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the three were not obligated
by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation of
Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by him, with the interest of
the amounts advanced at the rate of one-sixth part from each of his five codebtors

It would have been very just then to have absolved the solidary debtor who having to pay the debt in its entirety
would not be able to demand contribution from his codebtors in order that they might reimburse him pro rata for the
amount advanced for them by him. But such hypothesis must be put out of consideration by reason of the fact that
occurred during the pendency of the action, which fact the judge states in his decision. "In this contract of May
last," he says, "the amount of the debt was reduced to P225,000 and the attorney of the plaintiff admits in his
plea that Gregorio Yulo has a right to the benefit of this reduction."

Considering that the plaintiff in its brief, supports the same in these words: "What effect," it says, "could this
contract have over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff company?
In the first place, we are the first to realize that it benefits him with respect to the reduction of the amount of
the debt. The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or
more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance
with the provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the partial
remission of the debt granted by the creditor.

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has
affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of
P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be
recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three of
the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the Civil Code, cited
by the creditor itself.
If the intention of the later instrument over the former touching the amount of the debt had been recognized, should
such intention not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen
had been included in the suit, they could have alleged the defense of the nonmaturity of the installments since
the first installment did not mature until June 30, 1912, and without the least doubt the defense would have
prospered, and the three would have been absolved from the suit. Cannot this defense of the prematurity of the
action, which is implied in the last special defense set up in the answer of the defendant Gregorio Yulo be made
available to him in this proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this question: "Before the
performance of the condition, or before the execution of a term which affects one debtor alone proceedings may be
had against him or against any of the others for the remainder which may be already demandable but the conditional
obligation or that which has not yet matured cannot be demanded from any one of them. Article 1148 confirms the
rule which we now say to the extent as in case the total claim is made by one creditor, which we believe
improper if directed against the debtor affected by the condition or the term, the latter can make use of such
exceptions as are peculiarly personal to his own obligation; and if against the other debtors, they might make
use of those exceptions, even though they are personal to the other, inasmuch as they alleged they are personal to
the other, inasmuch as they alleged them in connection with that part of the responsibility attaching in a special
manner to the other."

The solidary debtor may utilize against the claims of the creditor of the defenses arising from the nature of the
obligation and those which are personal to him. Those personally pertaining to the others may be employed by him
only with regard to the share of the debt for which the latter may be liable.

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27,
1911, the first installment of the obligation had already matured of June 30, 1910

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo, they
being in identical condition as he. (Sila kasi yung tatlo dun sa anim na hindi ksma dun sa 1911)

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation,
contracted later, had as yet matured. This exception or personal defense of Francisco, Manuel, and Carmen Yulo
"as to the part of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense
to the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or
P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is
P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his
codebtors is not yet due, a state of affairs which not only prevents any action against the persons who were granted
the term which has not yet matured, but also against the other solidary debtors who being ordered to pay could not
now sue for a contribution, and for this reason the action will be only as to the P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of
the debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered
which sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the
object of the action.

It has been said that the prematurity of the action is one of the defenses derived from the nature of the obligation,
according to the opinion of the commentator of the Civil Code, Mucius Scaevola, and consequently the defendant
Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It may be so and yet, taken in
that light, the effect would not be different from that already stated in this decision; Gregorio Yulo could not be
freed from making any payment whatever but only from the payment of that part of the debt which
corresponds to his codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the
opposing contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to the
other it is conditional and is not yet demandable, and comparing the disadvantages which must flow from holding
that the obligation is demandable with these which must follow if the contrary view is adopted, favors this solution
of the problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may of
course, demand the payment of his credit against the debtor not favored by any condition or
extension of time." And further on, he decides the question as to whether the whole debt may be recovered
or only that part unconditionally owing or which has already matured, saying, "Without failing to proceed
with juridical rigor, but without falling into extravagances or monstrosities, we believe that the solution of
the difficulty is perfectly possible. How? By limiting the right of the creditor to the recovery of the
amount owed by the debtors bound unconditionally or as to whom the obligation has matured, and
leaving in suspense the right to demand the payment of the remainder until the expiration of the
term of the fulfillment of the condition. But what then is the effect of solidarity? How can this restriction
of right be reconciled with the duty imposed upon each one of the debtors to answer for the whole
obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition or
the expiration of the term of claiming from any one or all of the debtors that part of the obligation
affected by those conditions.

It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for the
whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the
amount which is owed by them because they are obliged to pay only 225,000 pesos and this is eight installments
none of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be obliged to pay his
part of the debt before the contract of May 12, 1911, may be enforced, and "consequently he decided the case in
favor of the defendant, without prejudice to the plaintiff proceeding in due time against him for his proportional part
of the joint debt."

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143 of
the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument of
August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to reduce the defendant's right of recovery from the signers of the
instrument of May 12, 1911, for he was justly absolved from the payment of that part of the debt
corresponding to them by reason of their having been upheld in his favor the exception of an unmatured
installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is
unconditionally obligated as to when the debt has matured, the creditor should be forced to await the realization of
the condition (or the expiration of the term.) Not only is there no reason for this, as stated by the author, but the
court would even fail to consider the special law of the contract, neither repealed nor novated, which cannot be
omitted without violating article 1091 of the Civil Code according to which "the obligations arising from
contracts have the force of law between the contracting parties and must be complied with in accordance with
the tenor of the same." Certain it is that the trial court, in holding that this action was premature but might be
brought in the time, regarded the contract of August 12, 1909, as having been expressly novated; but it is absolutely
impossible in law to sustain such supposed novation, in accordance with the legal principles already stated, and
nevertheless the obligation of the contract of May 12, 1911, must likewise be complied with in accordance with
its tenor, which is contrary in all respects to the supposed novation, by obliging the parties who signed the
contract to carry on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected the
action and the suit, to the extent that Gregorio Yulo has been able to make in his favor the defense of remission of
part of the debt, thanks to the provision of article 1148, because it is a defense derived from the nature of the
obligation, so that although the said defendant was not party to the contract in question, yet because of the
principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because
he has been benefited by the remission made by the plaintiff to three of his codebtors, many times named above.
Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can
recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only as to
the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with the
interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest
due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code, without any
special finding as to costs. The judgment appealed from is reversed. So, ordered.