### Facts:
Teodoro Yulo, a landowner in Iloilo, Philippines, engaged in business with the firm of Inchausti & Company, borrowing money under specific conditions for his haciendas in Negros Occidental. Upon his death on April 9, 1903, his widow and children continued the business dealings. The family, now known as Hijos de T. Yulo, maintained a current account with Inchausti & Co., accruing a debt of approximately P200,000. Attempts were made by Inchausti & Co. to secure payment through mortgage agreements executed on June 26, 1908, January 11 and July 17, 1909, acknowledging the debt and setting terms for its payment with interest.
Subsequent documents aimed to formalize these understandings further, with the addition of more family members and amendments regarding the debt’s terms and repayment schedule. Despite these arrangements, the first installment remained unpaid, leading Inchausti & Co. to file a lawsuit against Gregorio Yulo in Iloilo’s Court of First Instance on March 27, 1911, for the total outstanding balance. The Yulos attempted to re-negotiate terms, successfully reducing the debt and changing its repayment structure on May 12, 1911. However, this raised questions about the binding nature of the prior agreements and whether they were novated by the newer arrangement.
### Issues:
1. Whether the plaintiff, Inchausti & Co., can sue Gregorio Yulo alone despite multiple obligors.
2. If the contract dated May 12, 1911, novated the earlier agreement of August 12, 1909.
3. Whether the contract of May 12, 1911, affects the suit brought against Gregorio Yulo and the ability to recover the full debt amount.
4. The applicability of defenses linked to the debt’s maturity and the effect of joint obligations.
### Court’s Decision:
The Supreme Court reversed the decision of the lower court, ruling in favor of Inchausti & Co. but with modifications. It established that:
1. The firm could sue Gregorio Yulo alone due to the solidarity of the obligation.
2. The May 12, 1911, contract did not novate the August 12, 1909, agreement with respect to Gregorio Yulo and other debtors but did affect the recoverable debt amount.
3. Gregorio Yulo could avail the benefits of the reduced debt amount promised to his siblings in the May 12, 1911, agreement but was liable for the payment of P112,500 (half of the acknowledged debt) due to the special defenses applicable to his siblings not yet matured obligations.
4. The Supreme Court concluded that solidarity allowed for partial recovery based on modifications stipulated in later agreements among some, but not all, debtors.
### Doctrine:
The case reiterated the doctrines of solidary obligations under the Civil Code, the concept of novation, and the effects of partial defenses in solidary liabilities, emphasizing that an obligation does not novate by merely extending the payment period or adding new obligations if not expressly declared or if the old and new obligations are not entirely incompatible.
### Class Notes:
– Solidary Obligations: Each debtor is liable for the entire obligation, allowing the creditor to demand the total amount from any of the debtors.
– Novation: To extinguish an obligation by substituting it with a new one, it must be expressly declared or the old and new obligations must be entirely incompatible.
– Partial Defenses: In solidary liabilities, a debtor may invoke defenses personal to co-debtors only to the extent of the latter’s share in the obligation.
– Key Articles: Civil Code articles 1137, 1144 (solidary obligations), 1140 (solidarity regardless of conditions), 1204 (novation), and 1148 (utilization of defenses by solidary debtor).
### Historical Background:
The case demonstrates early 20th-century business practices in the Philippines, including lending and securing debts through real estate mortgages among prominent families and businesses. It reflects on the intricate legal challenges arising from family-managed estates and business dealings post-mortem, showcasing the evolving jurisprudence around obligations and contracts during the American colonial period.
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