FACTS:
Loans:
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence
the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation
pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002. After the
finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged
that his backwages should be computed from the time of his illegal dismissal (January 24,
1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because Nacar did
not appeal hence as to him, that decision became final and executory.
ISSUE:
Whether or not the Labor Arbiter is correct.
RULING:
No. There are two parts of a decision when it comes to illegal dismissal cases (referring to
cases where the dismissed employee wins, or loses but wins on appeal). The first part is the
ruling that the employee was illegally dismissed. This is immediately final even if the
employer appeals – but will be reversed if employer wins on appeal. The second part is the
ruling on the award of backwages and/or separation pay. For backwages, it will be computed
from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the
employer appeals, then the end date shall be extended until the day when the appellate
court’s decision shall become final. Hence, as a consequence, the liability of the employer, if
he loses on appeal, will increase – this is just but a risk that the employer cannot avoid when
it continued to seek recourses against the Labor Arbiter’s decision. This is also in accordance
with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the
Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by
the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796
which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are
now as follows:
1. Monetary Obligations ex.
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand
or upon judicial demand whichever is appropriate and subject to the provisions of Article
1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from
date of judicial or extra-judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum
demandable from the date of judgment because such on such date, it is already deemed that
the amount of damages is already ascertained.
3. Compounded Interest– This is applicable to both monetary and non-monetary obligations–
6% per annum computed against award of damages (interest) granted by the court. To be
computed from the date when the court’s decision becomes final and executory until the
award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:– Final and
executory judgments awarding damages prior to July 1, 2013 shall apply the 12% rate;– Final
and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate
for unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments
on or after July 1, 2013 shall still incur the 6% rate.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.1âwphi1
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July
1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED
and SET ASIDE. Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997
up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and
executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month
pay per year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until
their full satisfaction.