NACAR VS GALLERY FRAMES

FACTS: Dario Nacar filed complaint of constructive dismissal before the Labor Arbiter against
Gallery Frames and its owner. Nacar alleged that he was dismissed without just cause by Gallery
Frames in 1997. In 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal
hence the it awarded Nacar 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 in 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.

Upon recomputation, he was awarded PhP 471,320 (second amount). LA ordered Sheriff to collect this
amount from Gallery Frames. Gallery frames argued that amount should no longer have been increased
(i.e. amount should be based in the 1998 decision as this was the reference of the SC decision that became
final and executory.

NLRC Ruled in favor of Gallery frames. Another recomputation ensued which arrived at an amount of
PhP 147, 560 (third amount). LA issued a writ of execution. After this, petitioner received the 147k.
However, he then requested that he was entitled to receive interest payments. LA did not rule on interest
payments but nonetheless awarded Nacar an additional 11k (difference between first amount and third
amount). Nacar was not contented and still appealed the decision before the CA

CA Ruled that the 1998 Decision is already final and executory and its correction is no longer allowed.
Nacar appealed this decision before the SC.

ISSUE: Whether appropriate interest may be claimed by NACAR.

RULING

YES. THE SC held that NACAR should be entitled to interest.

The court gave the Guidelines for payment of interest as laid out in Eastern Shipping Lines v CA: a.
When judgment of court awarding a sum of money becomes final and executory, the rate of legal interest
is 12% per annum from such finality until its satisfaction.
However these guidelines were modified in June 30, 2013 by the BSP Monetary Board (MB): In its
Circular 799: 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.

Consequently, the legal interest of 12% per annum shall apply until June 30, 2013.

The respondent gallery frames was ordered to pay NACAR an Interest rate of 12% per annum for interest
payment earned from 2002 to June 30. For interest earned beyond July 1, 2013 until satisfaction the
applicable rate to be applied is 6%.

PCI LEASING & FINANCE vs. TROJAN METAL INDUSTRIES et. al. J. Carpio, 2010
FACTS: TMI came to PCI to seek a loan. Instead of extending a loan, PCI offered to buy various
equipment TMI owned, Deeds of sale were executed. PCI and TMI then entered into a lease agreement: -
lease the equipment it previously owned - postdated checks for 24 monthly installments - guaranty
deposit of P1.03M (security for timely performance of TMI's obligations under the lease agreement, to be
automatically forfeited should TMI return the leased equipment before expiration of the lease agreement)
- Sps. Dizon (President and Vice-President of TMI) also executed in favor of PCI a Continuing Guaranty
of Lease Obligations (agreed to immediately pay obligations in case TMI failed, under the lease
agreement) However, to obtain additional loan from another financing company, TMI used the leased
equipment as temporary collateral. PCI considered the 2nd mortgage a violation of the lease agreement.
PCI sent TMI a demand letter for payment of the latter's outstanding obligation, which was unheeded.
PCI filed in the RTC a complaint against TMI and sps. Dizon for recovery of sum of money and personal
property, with prayer for the issuance of a writ of replevin. RTC issued the writ of replevin. PCI sold the
leased equipment to a third party and collected the proceeds amounting to P1.025M Respondent claimed
that the sale with lease agreement was a mere scheme to facilitate the financial lease between PCI and
TMI, and that the true agreement between them was a loan secured by a chattel mortgage.
RTC: Lease agreement is valid; judgment in favor of PCI
CA: Set aside the decision of the RTC; sale with lease was a loan secured by chattel mortgage Directed
PCI to refund P1.1M to TMI

Issues:
(1) whether the sale with lease agreement the parties entered into was a financial lease or a
loan secured by chattel mortgage;
Ruling:
Petitioner (PCI): transaction between the parties was a sale and leaseback financing arrangement, which is
not contrary to law, morals, good customs, public order or public policy; guaranty deposit should be
forfeited in its favor, as provided in the lease agreement.

R cespondents (TMI): transfer of ownership to PCI was never the intention of the parties; guaranty
deposit will only be forfeited if TMI returned the leased equipment to PCI before expiration of the lease
agreement. Since TMI never returned the lease property voluntarily, but through writ of replevin, the
guaranty deposit should not be forfeited

SC: In a true financial leasing, a finance company purchases on behalf of a cash-strapped lessee the
equipment the latter wants to buy, but, due to financial limitations, is incapable of doing so. The finance
company then leases the equipment to the lessee in exchange for the latter's periodic payment of a fixed
amount of rental. HERE, TMI already owned the subject equipment before it transacted with PCI.
Therefore the transaction between the parties cannot be deemed to be in the nature of a financial leasing
as defined in law. * "Where the client already owned the equipment, but needed additional working
capital and the finance company purchased such equipment with the intention of leasing it back to him,
the lease agreement was simulated to disguise the true transaction that was a loan with security." * "The
intention of the parties was not to enable the client to acquire and use the equipment, but to extend to him
a loan." * Financial leasing contemplates the extension of credit to assist a buyer in acquiring movable
property which he can use and eventually own. The transaction between the parties was simply a loan
secured by chattel mortgage. Thus upon TMI's default, PCI was entitled to seize the mortgaged
equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel mortgage.
PCI's sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be
deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortagee.