G.R. No.

97412
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or
joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an
award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and
(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the
value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to
plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port
Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents
was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed
and refused to pay the same (Exhs. H, I, J, K, L).

1
 As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86,
Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As
for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although
subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record);
Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the
shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised
extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment
was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in
whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-
Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two
drums were shipped in good order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C).
But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service,
Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while
in the respective and/or successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the
Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In
the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15,
South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The
report further states that when defendant Allied Brokerage withdrew the shipment from
defendant arrastre operator's custody on January 7, 1982, one drum was found opened without
seal, cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was
found with adulterated/faked contents. It is obvious, therefore, that these losses/damages
occurred before the shipment reached the consignee while under the successive custodies of
defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect even if the
goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place
of destination, until the consignee has been advised and has had reasonable opportunity to
remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the
"Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981
one drum was found "open".

and thus held:

2
 WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1,
1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser,
while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual
invoice value of each package, crate box or container in no case to exceed P5,000.00 each,
pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant

Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there
is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate
court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN
THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND
ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646;
Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA
365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 17341 of
the Civil Code, are exclusive, not one of which can be applied to this case.
3
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has,
too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding
the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and
the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the
goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and
necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition
has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in
any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there
is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether
there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case,
appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum
of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be established with reasonable certainty." And as was held by this
Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known
until definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P.
Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property."
After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the
following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat
F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the
insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a
4
 result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of
June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00
with costs against defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in
adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final,
the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution
which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on
certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution
No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money,
goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest,
shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text)
—

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the
ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for
injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods
or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the
New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six
percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case was for damages
occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v.
Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e.,
from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the collapse of a building,
ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the
complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the
trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon
the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil
Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges
and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees,
the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%)

5
 per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in contravention of law." The Court10 ruled out the
applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but
then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the
judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing
of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to
the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for review on certiorari from
the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of
damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at
12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the
private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay
private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of employment contract. For
having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any
legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972
is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date
of the filing of the complaint until fully paid (Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of
judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn
interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the
trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of
the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a
breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was
filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14 decided on 08 May 1992,
involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered
the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest
thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of
certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the
6
 interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid
on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment
of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings
from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the
similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of
Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila Port Service
(1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank
Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular
imposing the 12% interest per annum applies only to loans or forbearance16 of money, goods or credits, as well as to judgments involving
such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe,
too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the
complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17 depending on whether or
not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the
"first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint
until fully paid, the "second group" varied on the commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining that "if the suit
were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest
'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6%
interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per
annum should be imposed from the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that
the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by
way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is breached, the contravenor can
be held liable for damages.19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.20

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:

1. 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.21 Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded.22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 116923 of the Civil Code.

2. 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 court24 at the rate of 6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.26 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.

3. 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 12% per annum from such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.
7
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to
be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such
amount upon finality of this decision until the payment thereof.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and
Kapunan, JJ., concur.

Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

2 28 SCRA 65.

3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube
Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo,
Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave.

4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998,
29 February 1956," 98 Phil. 516.

5 139 SCRA 260, 265.

6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos,
Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente,
Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a
concurring and dissenting opinion, concurred in by Justice Claudio Teehankee while Chief Justice Felix Makasiar
concurred with the separate opinion of Justice Plana.

7 143 SCRA 158.

8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina
Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.

9 160 SCRA 334.

10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla,
Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the
Court of Appeals.

11 167 SCRA 209.

8
12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa,
Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes,
Carolina Griño-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo
Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo Paras and
Florentino Feliciano also took no part.

13 170 SCRA 461.

14 208 SCRA 542.

15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera, Teodoro
Padilla, Florenz Regalado and Rodolfo Nocon.

16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a
contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or
debtor to repay loan or debt then due and payable.

17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing
considering that this case was decided upon before the issuance of Circular No. 416 by the Central Bank.

18 Art. 1157. Obligations arise from.

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Qausi-delicts."

19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.

20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations
mentioned in article 1157.

21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.

23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

"However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
9
 "In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins."

24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.

Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the
discretion of the court.

25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per annum.

26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.

10
G.R. No. 189871
27-35 minutes

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 189871               August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for
reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National
Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed
as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of ₱158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant
was dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant
was never afforded due process before he was terminated. As such, we are perforce constrained to grant complainant’s
prayer for the payments of separation pay in lieu of reinstatement to his former position, considering the strained
relationship between the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of
this decision as follows:

SEPARATION PAY
Date Hired = August 1990

11
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive
dismissal and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and
56/100 (₱62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and
36/100 (₱95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration,
but it was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued
a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error
on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002.9
The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled,
but respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed
from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May
27, 2002.11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount
in the sum of ₱471,320.31.12
12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing,
among other things, that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of
₱95,933.36, no more recomputation is required to be made of the said awards. They claimed that after the decision
becomes final and executory, the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal in
favor of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment
award in the sum of ₱471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due
to petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of ₱11,459.73.
The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was
the one that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the
separation pay and backwages are computed only up to the promulgation of the said decision, it is the amount of
₱158,919.92 that should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled to the
balance of ₱11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23
dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no
longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce
the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or
mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.

Hence, the petition assigning the lone error:

13
I

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED
GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER
OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998
DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY
OF THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s
decision, the same is not final until reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not
become final and executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered
in the Book of Entries on May 27, 2002, the reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998.
Further, petitioner posits that he is also entitled to the payment of interest from the finality of the decision until full
payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by
the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed only up
to [the] promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is
only entitled to the award as computed by the Labor Arbiter in the total amount of ₱158,919.92. Respondents added
that it was only during the execution proceedings that the petitioner questioned the award, long after the decision had
become final and executory. Respondents contend that to allow the further recomputation of the backwages to be
awarded to petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards
made, and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct
feature of the judgment of the Labor Arbiter in the above-cited case that the decision already provided for the
computation of the payable separation pay and backwages due and did not further order the computation of the
monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed employee
failed to appeal the decision of the labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by
a final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the
awards stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until
final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor
arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is
the finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages,
attorney's fees, and legal interests.
14
The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that
it was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of
what the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too,
that the petitioner now posits should no longer be re-computed because the computation is already in the labor
arbiter's decision that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-
computation is necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if
reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure
which requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall
embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we
noted above, this implication is apparent from the terms of the computation itself, and no question would have arisen
had the parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as
well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn,
affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional
grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule
65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th
month pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor
arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had the case been terminated and implemented at the labor
arbiter's level. Thus, the labor arbiter re-computed the award to include the separation pay and the backwages due up
to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and included as well the payment
for awards the final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor
arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate, the first
part contains the finding of illegality and its monetary consequences; the second part is the computation of the awards
or monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows from the
nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an original
computation, if no previous computation has been made) is a part of the law – specifically, Article 279 of the Labor
Code and the established jurisprudence on this provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code.
The recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute an
alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the
15
computation of monetary consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk
that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, the final
decision effectively declares that the employment relationship ended so that separation pay and backwages are to be
computed up to that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:

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:

1. 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 12% 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.

2. 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.

3. 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 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to
a forbearance of credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May
16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued
Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series
of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
16
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37
4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines40
and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but
will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1

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
17
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.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and
due to petitioner in accordance with this Decision.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice
TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION
Associate Justice Associate Justice
LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO
Associate Justice Associate Justice
ROBERTO A. ABAD MARTIN S VILLARAMA, JR.
Associate Justice Associate Justice
JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA
Associate Justice Associate Justice
BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE
Associate Justice Associate Justice

18
MARVIC MARIO VICTOR F. LEONEN
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes
1
Penned by Associate Justice Vicente S. E. Veloso, with Associate Justices Rebecca De Guia-Salvador
and Ricardo R. Rosario, concurring; rollo, pp. 33-48.
2
Id. at 32.
3
Id. at 79-84.
4
Id. at 82-84. (Emphasis supplied.)
5
Id. at 85-93.
6
Resolution dated July 24, 2000, id. at 94-96.
7
Rollo, p. 35.
8
Id. at 35-36.
9
Id. at 36.
10
Id. at 100.
11
Id.
12
Id. at 101.
13
Id. at 97-102.
14
Id. at 37.
15
Id. at 103-108.
16
Id. at 109-113.
17
Id. at 114-117.
18
Id. at 101.

19
19
Id. at 40.
20
Id. at 65-69.
21
Id. at 70-74.
22
Id. at 60-64.
23
Id. at 58-59.
24
Id. at 33-48.
25
Id. at 32.
26
Id. at 27.
27
G.R. No. 172149, February 8, 2010, 612 SCRA 10.
28
Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at 21-23.
29
Id. at 25.
30
Id. at 25-26.
31
Id. at 26.
32
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
33
Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at 95-97. (Citations omitted; italics in the
original).
34
SECTION 2. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall continue
to be twelve percent (12%) per annum.
35
Rate of interest in the absence of stipulation; Dated June 21, 2013.
36
§ X305.1 Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in judgments, in the absence of expressed contract
as to such rate of interest, shall be twelve percent (12%) per annum.
37
The Section is under Q Regulations or Regulations Governing Non-Bank Financial Institutions

Performing Quasi-Banking Functions. It reads:

§ 4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation. The rate of interest
for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall be twelve percent (12%) per
annum.

20
 38
The Section is under S Regulations or Regulations Governing Non-Stock Savings and Loan
Associations. It reads:

§ 4305S.3 Interest in the absence of contract. In the absence of express contract, the rate of
interest for the loan or forbearance of any money, goods or credit and the rate allowed in
judgment shall be twelve percent (12%) per annum.
39
The Section is under P Regulations or Regulations Governing Pawnshops. It reads:

§ 4303P.1 Rate of interest in the absence of stipulation. The rate of interest for a loan or
forbearance of money in the absence of an expressed contract as to such rate of interest, shall be
twelve percent (12%) per annum. (Circular No. 656 dated 02 June 2009)
40
Supra note 32, at 95-97.
41
G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.
42
Supra note 32.

The Lawphil Project - Arellano Law Foundation

21