EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. v.

EASTERN TELECOMS
EMPLOYEES UNION
Facts:
The Eastern Telecoms Employees Union (ETEU) claimed that Eastern Telecommunications Philippines,
Inc. (ETPI) had consistently and voluntarily been giving out 14th month bonus during the month of April,
and 15th and 16th month bonuses every December of each year (subject bonuses) to its employees from
1975 to 2002, even when it did not realize any net profits. ETEU posited that by reason of its long and
regular concession, the payment of these monetary benefits had ripened into a company practice which
could no longer be unilaterally withdrawn by ETPI.

ETEU added that this long-standing company practice had been expressly confirmed in the Side
Agreements of the 1998-2001 and 2001-2004 Collective Bargaining Agreements (CBA) which provided for
the continuous grant of these bonuses in no uncertain terms. ETEU theorized that the grant of the subject
bonuses is not only a company practice but also a contractual obligation of ETPI to the union members.

ETEU contended that the unjustified and malicious refusal of the company to pay the subject bonuses was
a clear violation of the economic provision of the CBA and constitutes unfair labor practice (ULP).
According to ETEU, such refusal was nothing but a ploy to spite the union for bringing the matter of delay
in the payment of the subject bonuses to the National Conciliation and Mediation Board (NCMB). It prayed
for the award of moral and exemplary damages as well as attorney’s fees for the unfair labor practice
allegedly committed by the company.

On the other hand, ETPI in its position paper, maintained that the complaint for nonpayment of 14th, 15th
and 16th month bonuses for 2003 and 14th month bonus for 2004 was bereft of any legal and factual basis.
It averred that the subject bonuses were not part of the legally demandable wage and the grant thereof to
its employees was an act of pure gratuity and generosity on its part, involving the exercise of management
prerogative and always dependent on the financial performance and realization of profits. It posited that it
resorted to the discontinuance of payment of the bonuses due to the unabated huge losses that the company
had continuously experienced. It claimed that it had been suffering serious business losses since 2000 and
to require the company to pay the subject bonuses during its dire financial straits would in effect penalize
it for its past generosity. It alleged that the nonpayment of the subject bonuses was neither flagrant nor
malicious and, hence, would not amount to unfair labor practice.

On April 28, 2005, the NLRC issued its Resolution dismissing ETEU’s complaint and held that ETPI could
not be forced to pay the union members the 14th, 15th and 16th month bonuses for the year 2003 and the
14th month bonus for the year 2004 inasmuch as the payment of these additional benefits was basically a
management prerogative, being an act of generosity and munificence on the part of the company and
contingent upon the realization of profits. The NLRC pronounced that ETPI may not be obliged to pay these
extra compensations in view of the substantial decline in its financial condition. Likewise, the NLRC found
that ETPI was not guilty of the ULP charge elaborating that no sufficient and substantial evidence was
adduced to attribute malice to the company for its refusal to pay the subject bonuses.

Aggrieved, ETEU filed a petition for certiorari before the CA. In its assailed June 25, 2008 Decision, the CA
declared that the Side Agreements of the 1998 and 2001 CBA created a contractual obligation on ETPI to
confer the subject bonuses to its employees without qualification or condition. It also found that the grant
of said bonuses has already ripened into a company practice and their denial would amount to diminution
of the employees’ benefits. It held that ETPI could not seek refuge under Article 1267 of the Civil Code
because this provision would apply only when the difficulty in fulfilling the contractual obligation was
manifestly beyond the contemplation of the parties, which was not the case therein. The CA, however,
sustained the NLRC finding that the allegation of ULP was devoid of merit.

Issue:
WON petitioner ETPI is liable to pay 14th, 15th and 16th month bonuses for the year 2003 and 14th month
bonus for the year 2004 to the members of respondent union.

Ruling: YES.
From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the recipient has no
right to demand as a matter of right. The grant of a bonus is basically a management prerogative which
cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting
bonuses or other benefits aside from the employee’s basic salaries or wages. A bonus, however,
becomes a demandable or enforceable obligation when it is made part of the wage or salary
or compensation of the employee.
In the case at bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a
provision for the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side
Agreement, as well as in the 2001-2004 CBA Side Agreement, which was signed on September 3, 2001.
There were no conditions specified in the CBA Side Agreements for the grant of the benefits contrary to the
claim of ETPI that the same is justified only when there are profits earned by the company. The said
provision does not state that the subject bonuses shall be made to depend on the ETPI’s financial standing
or that their payment was contingent upon the realization of profits. Neither does it state that if the company
derives no profits, no bonuses are to be given to the employees. In fine, the payment of these bonuses was
not related to the profitability of business operations. The records are also bereft of any showing that the
ETPI made it clear before or during the execution of the Side Agreements that the bonuses shall be subject
to any condition.

Verily, by virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th month
bonuses have become more than just an act of generosity on the part of ETPI but a contractual obligation it
has undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union members from 1998
to 2002 by virtue of the Side Agreements evidently negates its argument that the giving of the subject
bonuses is a management prerogative. From the foregoing, ETPI cannot insist on business losses as a basis
for disregarding its undertaking. Granting arguendo that the CBA Side Agreement does not contractually
bind petitioner ETPI to give the subject bonuses, nevertheless, the Court finds that its act of granting the
same has become an established company practice such that it has virtually become part of the employees’
salary or wage. A bonus may be granted on equitable consideration when the giving of such bonus has been
the company’s long and regular practice. The records show that ETPI, aside from complying with the regular
13th month bonus, has been further giving its employees 14th month bonus every April as well as 15th and
16th month bonuses every December of the year, without fail, from 1975 to 2002 or for 27 years whether it
earned profits or not. The considerable length of time ETPI has been giving the special grants to its
employees indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that
such act was not required by law. Accordingly, a company practice in favor of the employees has been
established and the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the
employees.

The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is
founded on the constitutional mandate to protect the rights of workers and to promote their welfare and to
afford labor full protection.

OCCENA v. HON. RAMON V. JABSON

Facts:
The Civil Code authorizes the release of an obligor when the service has become so difficult as to be
manifestly beyond the contemplation of the parties but does not authorize the courts to modify or
revise the subdivision contract between the parties or fix a different sharing ratio from that
contractually stipulated with the force of law between the parties.

Private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of
its subdivision contract with petitioners. That due to the increase in price of oil and its derivatives and the
concomitant worldwide spiraling of prices, of all commodities including basis raw materials required for
such development work, the cost of development has risen to, at the time said agreement was entered into
and to such a degree that the conditions and factors which formed the original basis of said contract have
been totally changed.

Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's fixed
and sole share and participation an amount equivalent to forty (40%) percent of all cash receipts fromthe
sale of the subdivision lots"

Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court render
judgment modifying the terms and conditions of the contract ... by fixing the proper shares that should
pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subjects
subdivision".

Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary injunction
previously issued by it and dismissed petition on the ground that under Article 1267 of the Civil Code which
provides that

ART. 1267. When the service has become so difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom, in whole or in part. 1

... a positive right is created in favor of the obligor to be released from the performance of an
obligation in full or in part when its performance 'has become so difficult as to be manifestly beyond
the contemplation of the parties.

Issue: WON the trial court erred in its decision of modifying the terms and conditions of the contract.

Ruling: YES.
The respondent court misapplied the Art. 1267. If respondent's complaint were to be released from having
to comply with the subdivision contract, assuming it could show at the trial that the service undertaken
contractually by it had "become so difficult as to be manifestly beyond the contemplation of the parties",
then respondent court's upholding of respondent’s complaint and dismissal of the petition would be
justifiable under the cited article.

But respondent's complaint seeks not release from the subdivision contract but that the court "render
judgment I modifying the terms and Conditions of the Contract by fixing the proper shares that should
pertain to the herein parties out of the gross proceed., from the sales of subdivided lots of subject
subdivision". The cited article does not grant the courts this authority to remake, modify or revise the
contract or to fix the division of shares between the parties as contractually stipulated with the force of law
between the parties, so as to substitute its own terms for those covenanted by the parties. Respondent's
complaint for modification of contract manifestly has no basis in law and therefore states no cause of action.
Under the particular allegations of respondent's complaint and the circumstances therein averred, the
courts cannot even in equity grant the relief sought.

VICTOR YAM & YEK SUN LENT v. THE COURT OF APPEALS and MANPHIL INVESTMENT
CORPORATION

Facts: The parties in this case entered into a Loan Agreement with Assumption of Solidary Liability whereby
petitioners were given a loan of P500,000.00 by private respondent. The contract provided for the payment
of 12% annual interest, 2% monthly penalty, 1 1/2% monthly service charge, and 10% attorney's
fees. 2 Denominated the first Industrial Guarantee and Loan Fund (IGLF), the loan was secured by a chattel
mortgage on the printing machinery in petitioners' establishment. 3

Petitioners subsequently obtained a second IGLF loan of P300,000.00 evidenced by two promissory notes,
for this purpose, a new loan agreement 4 was entered into by the parties containing identical provisions as
the first one, except as to the annual interest which was increased to 14% and the service charge which was
reduced to 1% per annum.

Petitioners had paid their first loan of P500,000.00. Then, private respondent was placed under
receivership by the Central Bank, wherein Lirio and Destajo were appointed as receiver and in-house
examiner, respectively.

On May 17, 1986, petitioners made a partial payment of P50,000.00 on the second loan. They later wrote
private respondent a letter, dated June 18, 1986, proposing to settle their obligation. Private respondent,
through its counsel, replied with a counter-offer, namely, that it would reduce the penalty charges up to
P140,000.00, provided petitioners can pay their obligation on or before July 30, 1986. 6

Petitioner’s total liability to private respondent was P727,001.35:

Principal — P295,469.47

Interest — 165,385.00

Penalties — 254,820.55

Service Charges — 11,326.33

—————

TOTAL P727,001.35

On this date, petitioners paid P410,854.47. The corresponding voucher for the check bears the
following notation: "full payment of IGLF LOAN." 9

The amount of P410,854.47 was the sum of the principal (P295,469.47) and the interest; (P165,385.00) less
the partial payment of P50,000.00. The private respondent sent two demand letters to petitioners, seeking
payment of the balance of P266,146.88. As petitioners did not respond, private respondent filed this case
in the Regional Trial Court of Metro Manila for the collection of P266,146.88 plus interests, penalties, and
service charges or, in the alternative, for the foreclosure of the mortgaged machineries.

According to Petitioner, that they had fully paid their obligation to private respondent. They contended that
some time after receiving private respondent's letter, they met with president of respondent corporation,
during which the latter agreed to waive the penalties and service charges, provided petitioners paid the
principal and interest.

RTC: Victor Yam and Yek Sun Lent are hereby ordered to pay jointly and severally, the principal
loan. balance of P266,146.88 plus interest at 14% per annum, service charge at 1% per annum and
penalty fees at 2% per month and to pay plaintiff attorney's fees equivalent to 10% of the amount
 to be recovered, and to pay the costs of suit, failing in which, the chattel mortgage instituted on the
printing machineries and equipment described in the Deed of Chattel Mortgage.

CA: On appeal, the Court of Appeals affirmed the decision of the trial court in toto.

Issue:
WON MANPHIL Investment Corporation, through its president, condone penalties and charges after it had
been placed under receivership?

Ruling: NO.
Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the
forms of donation.
Art. 748, par. 3 provides that the donation and acceptance of a movable, the value of which
exceeds P5,000,00, must be made in writing, otherwise the same shall be void.
In this connection, under Art. 417, par. 1, obligations, actually referring to credits, l3 are
considered movable property.

In the case at bar, it is undisputed than the alleged agreement to condone P266,196.88 of the second IGLF
loan was not reduced in writing.

Nonetheless, petitioners insist that the voucher covering the Pilipinas Bank check for P410,854.47,
containing the notation that the amount is in "full payment of IGLF loan," constitutes documentary
evidence of such oral agreement. This contention is without merit. The notation in "full payment of IGLF
loan" merely states petitioners' intention in making the payment, but in no way does it bind private
respondent. Indeed, if private respondent really condoned the amount in question, petitioners should have
asked for a certificate of full payment from respondent corporation, as they did in the case of their first IGLF
loan of P500,000.00.

Moreover, it is to be noted that the alleged agreement to condone the amount in question was supposedly
entered into by the parties sometime in July 1986, that is, after respondent corporation had been placed
under receivership on November 4, 1985.

MONTEMAYOR v. MILLORA
Facts:
For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the
Civil Code, quoted below, must be present.
ARTICLE 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
ARTICLE 1279. In order that compensation may be proper, it is necessary: (1) That each one of
the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due;
(4) That they be liquidated and demandable; (5) That over neither of them there be any retention
or controversy, commenced by third persons and communicated in due time to the debtor.

Respondent Atty. Vicente D. Millora (Vicente) obtained a loan of P400, 000.00 from petitioner Dr. Jesus
M. Montemayor (Jesus). The loan has a 2% interest and by this time, Vicente had already paid the amount
of P108, 000.00 for the period July 24 to August 23, 1990.

Subsequently and with Vicente’s consent, the interest rate was increased to 3.5% or P10, 500.00 a month.
From March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was supposed to pay P42,
000.00 as interest but was able to pay only P24, 000.00. Jesus made several demands for Vicente to settle
his obligation but to no avail.

Jesus filed before the RTC of Quezon City. Atty. Vicente filed a COUNTERCLAIM against Jesus claiming
that Atty. Vicente was Jesus’ lawyer on several occasions and that in fact, Jesus owes Atty. Vicente attorney’s
fees of not less than P500, 000.00. Vicente claims that he was summarily dismissed from handling them
when the instant complaint for sum of money was filed.

The RTC ordered Vicente to pay Jesus his monetary obligation amounting to P300, 000.00 plus interest of
12% from the time of the filing of the complaint on August 17, 1993 until fully paid ADDITIONALLY, THERE
WAS NO PRONOUNCMENT ON ATTORNEY’S FEES AND COST OF SUIT. Jesus filed a motion for
reconsideration at the CA but was denied.

Upon appeal to the higher court, Jesus contends that the trial court grievously erred in ordering the
implementation of the RTC’s October 27, 1999 Decision considering that same does fix the amount of
attorney’s fees. According to Jesus, such disposition leaves the matter of computation of the attorney’s
fees uncertain and, hence, the writ of execution cannot be implemented. In this regard, Jesus points out
that not even the Sheriff who will implement said Decision can compute the judgment awards. Besides, a
sheriff is not clothed with the authority to render judicial functions such as the computation of specific
amounts of judgment awards.

Regional Trial Court Decision:

First Part - The computation of the amount due to Jesus which is P300, 000.00 is to be multiplied by the
interest rate of 12%. The result thereof plus the principal of P300,000.00 is the total amount that Vicente
must pay Jesus.

Second Part – The computation of attorney’s fees to Vicente. Vicente is entitled to attorney’s fees which
is equivalent to whatever amount recoverable from him by Jesus. Legal compensation or set-off then takes
place between Jesus and Vicente and both parties are on even terms such that there is actually nothing left
to execute and satisfy in favor of either party.

Issue: WON the absence of a specific amount in the decision representing respondent's counterclaim, the
same could be validly offset against the specific amount of award mentioned in the decision in favor of the
petitioner

Ruling: NO

Jesus contends that for offsetting to apply, the two debts must be liquidated or ascertainable. However, the
trial court merely awarded to Vicente attorney’s fees based on quantum meruit without specifying the exact
amount thereof. His contention is untenable. For legal compensation to take place, the requirements set
forth in Articles 1278 and 1279 of the Civil Code

ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.

ARTICLE 1279. In order that compensation may be proper, it is necessary: (1) That each one of
the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due;
(4) That they be liquidated and demandable (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.

A debt is liquidated when its existence and amount are determined. Also, when the determination of the
exact amount depends only on a simple arithmetical operation. It is not necessary that it be admitted by the
debtor. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as
liquidated; it is enough that its exact amount is known.

In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus
in the amount of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the
instant complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation to pay
attorney’s fees which the RTC had already determined to be equivalent to whatever amount recoverable
from Vicente. The said attorney’s fees were awarded by the RTC on the counterclaim of Vicente on the basis
of “quantum meruit” for the legal services he previously rendered to Jesus.

SIME DARBY PILIPINAS v. GOODYEAR PHILIPPINES INC.

Facts:
A Magallanes billboard was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of
P120,000.00. The lease had a term of four years and was set to expire on March 30, 1998. Upon signing of
the contract, Sime Darby paid Macgraphics a total of P1.2 million representing the ten-month deposit which
the latter would apply to the last ten months of the lease. Thereafter, Macgraphics configured the
Magallanes billboard to feature Sime Darby's name and logo.

On April 22, 1996, Sime Darby executed a Memorandum of Agreement with Goodyear, whereby it agreed
to sell its tire manufacturing plants and other assets to the latter for a total of P1.5 billion.

Just a day after, Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion to P1.65
billion. The increase of the purchase price was made in consideration, among others, of the assignment by
Sime Darby of the receivables in connection with its billboard advertising in Makati and Bulacan. Thus,
Sime Darby and Goodyear executed a deed entitled "Deed of Assignment”, through which Sime Darby
assigned, among others, its leasehold rights and deposits made to Macgraphics pursuant to its lease contract
over the Magallanes billboard.

Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear.
After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear
requested that Macgraphics submit its proposed quotation for the production costs of the new design.
Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard is P250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical aspects of the
submitted design.

However, Goodyear deny the offer. It stated that it intended to honor the P120,000.00 monthly rental rate
given by Macgraphics to Sime Darby.
Macgraphics informing the latter that it could not give its consent to the assignment of lease to Goodyear.
Macgraphics explained that the transfer of Sime Darby's leasehold rights to Goodyear would necessitate
drastic changes to the design and the structure of the neon display of the Magallanes billboard and would
entail the commitment of manpower and resources that it did not foresee at the inception of the lease.

Due to Macgraphics' refusal to honor the Deed of Assignment, Goodyear sent Sime Darby a letter,
demanding partial rescission of the Deed of Assignment and the refund of P1,239,000.00, the pro-rata
value of Sime Darby's leasehold rights over the Magallanes billboard.

As Sime Darby refused to accede to Goodyear's demand for partial rescission, Thus a case had been filed.
Goodyear alleged that Sime Darby was unable to deliver the object of the Deed of Assignment and was in
breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating that "no consent of any
third party with whom Sime Darby has a contractual relationship is required in connection with the
execution and delivery of the MOA, or the consummation of the transactions contemplated therein."

Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial
rescission of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and
interest of Sime Darby in the contract of lease and Macgraphics be ordered to pay it the amount of
P1,239,000.00.

After trial and the submission of the parties of their respective memoranda, the RTC rendered its decision
directing Sime Darby to pay Goodyear and the latter will pay Macgraphics

The trial court was of the considered view that Sime Darby should have secured the consent of Macgraphics
to the assignment of the lease before it could be effective against the latter. The trial court noted that the
contract of lease between Sime Darby and Macgraphics made no mention of any clause that would grant
Sime Darby the right to unilaterally assign the lease.

Thus, following Article 1649 of the New Civil Code, the trial court ruled that absent any stipulation to the
contrary, the assignment of the lease without the consent of Macgraphics was not valid. The RTC also stated
that as far as Macgraphics was concerned, its relationship with Goodyear was that of a new client.

With Sime Darby's failure to secure the consent of Macgraphics, the trial court considered that it failed to
deliver the object of the Deed of Assignment. The RTC, thus, ruled that following Article 1191 of the New
Civil Code, Goodyear was entitled to demand rescission of the assignment of the lease over the billboard.

Issue: Is partial rescission of the Deed of Assignment is proper?

Ruling: NO.
The petition of Sime Darby remains bereft of any merit. Article 1649 of the New Civil Code provides:
Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation
to the contrary. (n)

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the
lessee.The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical
relation arises between the two persons who remain the lessor and the assignee who is converted into the
new lessee. The objective of the law in prohibiting the assignment of the lease without the lessors consent
is to protect the owner or lessor of the leased property.

Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An
extinctive novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective
or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation,
the other to substitute a new one in its place.This requires a conflux of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation.

While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts
and the evidence on record, finds that the other requirements of a valid novation are lacking.A review of the
lease contract between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign
the lease without the consent of Macgraphics.

Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows
that Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA,
Macgraphics was never part of the negotiations between Sime Darby and Goodyear.Neither did it give its
conformity to the assignment after the execution of the Deed of Assignment.

The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not
be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific
or particular form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave
its implied consent to the assignment of lease.

GARCIA v. LLAMAS
Facts:
Complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner Romeo Garcia and
Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him. They bound themselves jointly
and severally to pay the loan on or before January 23, 1997 with a 15% interest per month. The loan
remained unpaid despite repeated demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory note merely as an accommodation
party for de Jesus and the latter had already paid the loan by means of a check and that the issuance of the
check and acceptance thereof novated or superseded the note.

The trial court rendered a judgment on the pleadings in favor of the respondent and directed petitioner to
pay jointly and severally respondent the amounts of Php 400, 000 representing the principal amount plus
interest at 15% per month from January 23, 1997 until the same shall have been fully paid, less the amount
of Php 120,000 representing interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when respondent accepted
the check from de Jesus. According to the CA, the check was issued precisely to pay for the loan that was
covered by the promissory note jointly and severally undertaken by petitioner and de Jesus. Respondent’s
acceptance of the check did not serve to make de Jesus the sole debtor because first, the obligation incurred
by him and petitioner was joint and several; and second, the check which had been intended to extinguish
the obligation bounced upon its presentment.

Issues:
• Whether or not there was novation of the obligation
• Whether or not the defense that petitioner was only an accommodation party had any basis.

Ruling:
For novation to take place, the following requisites must concur:
(1) There must be a previous valid obligation;
(2) the parties concerned must agree to a new contract;
(3) the old contract must be extinguished; and
(4) there must be a valid new contract.

The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and
the acceptance of the check or that the check would take the place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or order—a requisite
for negotiability. Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities and
defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing
and evidence of such intangible rights as may have been created by the assent of the parties. The promissory
note is thus covered by the general provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An accommodation
party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the
former to be only an accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promissory debtor from the beginning. The liability
is immediate and direct.

LICAROS v. GATMAITAN
Facts:
The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered and
organized to do business under the laws of the Republic of Vanuatu but not in the Philippines. Its business
consists primarily in receiving fund placements by way of deposits from institutions and individuals
investors from different parts of the world and thereafter investing such deposits in money market
placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the
purpose of maximizing the returns on those investments.

Enticed by the lucrative prospects of doing business with Anglo-Asean, Licaros, a Filipino businessman,
decided to make a fund placement with said bank. As it turned out, the grim outcome of Licaros' foray in
overseas fund investment was not exactly what he envisioned it to be. More particularly, Licaros, after
having invested in Anglo-Asean, encountered tremendous and unexplained difficulties in retrieving, not
only the interest or profits, but even the very investments he had put in Anglo-Asean.

Confronted with the dire prospect of not getting back any of his investments, Licaros then decide to seek
the counsel of Gatmaitan, a reputable banker and investment manager who had been extending managerial,
financial and investment consultancy services to various firms and corporations both here and abroad. To
Licaros' relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to
assume the payment of Anglo-Asean's indebtedness to Licaros subject to certain terms and
conditions. In order to effectuate and formalize the parties' respective commitments, the two executed a
notarized MEMORANDUM OF AGREEMENT. Conformably with his undertaking, Gatmaitan executed in
favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS

Thereafter, Gatmaitan presented to Anglo-Asean the said memorandum of agreement for the purpose of
collecting Licaros' placement thereat. No formal response was ever made by said bank to either Licaros or
Gatmaitan. Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother
anymore to make good his promise to pay Licaros the amount stated in his promissory note. Licaros,
however, thought differently. He felt that he had a right to collect on the basis of the promissory note
regardless of the outcome of Gatmaitan's recovery efforts. Thus, Licaros, thru counsel, addressed successive
demand letters to Gatmaitan; demanding payment of the latter's obligations under the promissory note.
Gatmaitan, however, did not accede to these demands.

Thus, Licaros filed a complaint in the RTC and prayed that Gatmaitan should pay him the principal
obligation, attorney's fees, and legal interest. After trial on the merits, the court a quo rendered judgment
in favor of petitioner Licaros.

In his appeal to CA, the appellate court reversed the decision of the trial court and held that respondent
Gatmaitan did not at any point become obligated to pay to petitioner Licaros the amount stated in the
promissory note.

Issue: Whether the memorandum of agreement between petitioner and respondent was one of assignment
of credit or one of conventional subrogation.

Ruling:
The Supreme Court agreed with the finding of the Court of Appeals that the Memorandum of Agreement
was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean
Bank, for its validity.

The Memorandum of Agreement never came into effect due to the failure of the parties to get the consent
of Anglo-Asean Bank and, as such, respondent never became liable for the amount stipulated therein. The
absence of such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from
becoming valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the
Memorandum of Agreement was never perfected.

The general tenor of the foregoing definitions of the terms "subrogation" and "assignment of credit" may
make it seem that they are one and the same which they are not. A noted expert in civil law notes their
distinctions thus:

"Under our Code, however, conventional subrogation is not identical to assignment of credit. In the
former, the debtor's consent is necessary; in the latter it is not required. Subrogation extinguishes the
obligation and gives rise to a new one; assignment refers to the same right which passes from one person
to another. The nullity of an old obligation may be cured by subrogation, such that a new obligation will
be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right
to another."

For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in the original
transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the
assignment may fully produce legal effects. What the law requires in an assignment of credit is not the
consent of the debtor but merely notice to him as the assignment takes effect only from the time he has
knowledge thereof. A creditor may, therefore, validly assign his credit and its accessories without the
debtor's consent. On the other hand, conventional subrogation requires an agreement among the three
parties concerned — the original creditor, the debtor, and the new creditor. It is a new contractual relation
based on the mutual agreement among all the necessary parties.

Thus, Article 1301 of the Civil Code explicitly states that "Conventional subrogation of a third person
requires the consent of the original parties and of the third person."

It is a basic rule in the interpretation of contracts that "(t)he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken
jointly." Moreover, under our Rules of Court, it is mandated that "(i)n the construction of an instrument
where there are several provisions or particulars, such a construction is, if possible, to be adopted as will
give effect to all." Further, jurisprudence has laid down the rule that contracts should be so construed as to
harmonize and give effect to the different provisions thereof.

In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with
either a conventional subrogation or assignment of credit. It has not been shown that any clause or
provision in the Memorandum of Agreement is inconsistent or incompatible with a conventional
subrogation. On the other hand, the two cited provisions requiring consent of the debtor to the
memorandum is inconsistent with a contract of assignment of credit. Thus, if we were to interpret the same
as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-Asean
Bank would be rendered inutile and useless considering that, as previously discussed, the consent of the
debtor is not necessary in an assignment of credit.

JAPAN AIRLINES v. JESUS SIMANGAN

Facts:

Respondent decided to donate a kidney to his ailing cousin, in UCLA School of Medicine in Los Angeles,
California. Upon request of UCLA, respondent undertook a series of laboratory tests to verify whether his
blood and tissue type are compatible with Loreto's. Fortunately, said tests proved that respondent's blood
and tissue type were well-matched with Loreto's.

Respondent needed to go to the United States to complete his preliminary work-up and donation surgery.
Hence, to facilitate respondent's travel to the United States, UCLA wrote a letter to the American Consulate
in Manila to arrange for his visa. In due time, respondent was issued an emergency U.S. visa by the
American Embassy in Manila.

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner
JAL for US$1,485.00 and was issued the corresponding boarding pass. He was scheduled to a particular
flight bound for Los Angeles, California, U.S.A. via Narita, Japan.

On the day of his flight, while inside the airplane JAL's airline crew suspected respondent of carrying a
falsified travel document and imputed that he would only use the trip to the United States as a pretext to
stay and work in Japan. The stewardess asked respondent to show his travel documents. Shortly after, the
stewardess along with a Japanese and a Filipino haughtily ordered him to stand up and leave the plane.
Respondent protested, explaining that he was issued a U.S. visa. Just to allow him to board the plane, he
pleaded with JAL to closely monitor his movements when the aircraft stops over in Narita. His pleas were
ignored. He was then constrained to go out of the plane.

Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off
and he was left behind. Afterwards, he was informed that his travel documents were, indeed, in
order. Respondent was refunded the cost of his plane ticket less the sum of US$500.00 which was deducted
by JAL.21 Subsequently, respondent's U.S. visa was cancelled.

Displeased by the turn of events, respondent filed an action for damages against JAL. He claimed he was
not able to donate his kidney to Loreto; and that he suffered terrible embarrassment and mental anguish.

JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow
respondent to fly on his scheduled departure was due to "a need for his travel documents to be authenticated
by the United States Embassy’ because no one from JAL's airport staff had encountered a parole visa before.
It posited that the authentication required additional time; that respondent was advised to take the flight
the following day, JAL alleged that respondent agreed to be rebooked.

The RTC rendered decision in favor of the respondent. Accordingly, in summarily and insolently ordering
the plaintiff to disembark while the latter was already settled in his assigned seat, the defendant violated
the contract of carriage. The reason given by the defendant that what prompted them to investigate the
genuineness of the travel documents of the plaintiff does not appear satisfactory. The defendant is engaged
in transporting passengers by plane from country to country and is therefore conversant with the travel
documents.

The CA affirmed the decision of the RTC with modification in the damages. The CA elucidated that since
JAL issued to respondent a round trip plane ticket for a lawful consideration, "there arose a perfected
contract between them." It found that respondent was "haughtily ejected"by JAL and that "he was certainly
embarrassed and humiliated"37 when, in the presence of other passengers. While the protection of
passengers must take precedence over convenience, the implementation of security measures must be
attended by basic courtesies.

In fact, breach of the contract of carriage creates against the carrier a presumption of
liability, by a simple proof of injury, relieving the injured passenger of the duty to establish
the fault of the carrier or of his employees; and placing on the carrier the burden to prove
that it was due to an unforeseen event or to force majeure.
 That appellee possessed bogus travel documents and that he might stay illegally in Japan are
allegations without substantiation. Also, appellant's attempt to rebook appellee the following day
was too late and did not relieve it from liability. The damage had been done. Besides, its belated
theory of novation, i.e., that appellant's original obligation to carry appellee to Narita and Los
Angeles on July 29, 1992 was extinguished by novation when appellant and appellant agreed that
appellee will instead take appellant's flight to Narita on the following day, July 30, 1992, deserves
little attention.

But however, fundamental in the law on damages is that one injured by a breach of a contract, or by a
wrongful or negligent act or omission shall have a fair and just compensation commensurate to the loss
sustained as consequence of the defendant's act. Being discretionary on the court, the amount, however,
should not be palpably and scandalously excessive.

Issue:
WON JAL is guilty of breach of contract of carriage?

Ruling: YES

That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding
pass is uncontroverted. His plane ticket, boarding pass, travel authority and personal articles were
subjected to rigid immigration and security procedure. After passing through said immigration and security
procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan. Concisely, there was a contract of carriage between JAL and respondent.

Nevertheless, JAL made respondent get off the plane on his scheduled departure. He was not allowed by
JAL to fly. JAL thus failed to comply with its obligation under the contract of carriage. The Court does not
sustain the argument of JAL.

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but
to be left behind. The latter was unceremoniously bumped off despite his protestations and valid travel
documents and notwithstanding his contract of carriage with JAL. Damage had already been done when
respondent was offered to fly the next day.

Considering that respondent was forced to get out of the plane and left behind against his will, he could not
have freely consented to be rebooked the next day. In short, he did not agree to the alleged novation. Since
novation implies a waiver of the right the creditor had before the novation, such waiver must be express. It
cannot be supposed, without clear proof, that respondent had willingly done away with his right to fly.

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articles
already passed the rigid immigration and security routines, JAL, as a common carrier, ought to know the
kind of valid travel documents respondent carried.

As provided in Article 1755 of the New Civil Code: "A common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances."

ODIAMAR v. ODIAMAR-VALENCIA
Facts:

The fact that the creditor accepts payments from a third person, who has assumed the obligation,
will result merely in the addition of debtors and not novation. At its core, novation is never
presumed, and the animus novandi, whether totally or partially, must appear by express agreement
of the parties, or by their acts that are too clear and unequivocal to be mistaken.

Respondent alleged that the petitioner owed her P2,100,000.00, including the petitioner’s parents debt
amounting to P700,000.00. Petitioner purportedly issued a check which was later dishonored upon
presentment to the bank. Thus, the respondent filed a complaint for collection of sum of money. Petitioner
alleged that it was her deceased parents who owed respondent the money, and that respondent’s claim
should be filed in the proceedings for the settlement of the deceased’s estates. She asserted that the
respondent merely persuaded her to issue a check to guarantee her deceased parents’ loan. The RTC and
CA held the petitioner liable for the entire debt. They also held that novation took place insofar as petitioner
was substituted in place of petitioner’s late parents, considering that petitioner undertook to pay her
deceased parents’ debt. However, the CA opined that there was no novation with respect to the object of the
contract, following the rule that an instrument which expressly recognizes the old obligation and charges
only the terms of paying the same, as in this case where the parties merely modified the terms of payment.

Issue:
WON petitioner should be held liable to respondent for the entire debt in the amount of P2,100,000.00.

Ruling: NO.

Petitioner should only be held liable for her personal debt, and should not be held liable for the debts
obtained by her deceased parents on account of novation by substitution of the debtor. While it is observed
that petitioner had indeed admitted that she agreed to settle her late parents’ debt, there was no allegation,
much less any proof to show that the estates of her deceased parents were released from liability thereby.
The Court held that the fact that the creditor accepts payments from a third person, who has assumed the
obligation, will result merely in the addition of debtors and not novation. At its core, novation is never
presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken. Here, the intent to novate was
not satisfactorily proven by respondent. At best, petitioner only manifested her desire to shoulder the debt
of her parents.