Eastern Shipping and Nacar Case

78

SUPREME COURT REPORTS ANNOTATED Eastern Shipping Lines, Inc. vs. Court of Appeals

G.R. No. 97412. July 12, 1994. EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. *

Common Carriers; Obligations; Presumption of Fault; When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that requisite diligence, and there need not be an express finding of negligence to hold it liable.—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 ______________ *EN BANC. 79

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Eastern Shipping Lines, Inc. vs. Court of Appeals 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 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. Same; Same; Arrastre Operator; Carrier and arrastre operator liable in solidum for the proper delivery of the goods to the consignee.—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 Co. vs. Metro Port Service, Inc. (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., et al., 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.” Same; Same; Same; The Supreme Court is not implying, however, 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.—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 viceversa, 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. Damages; Interest Rates; Rules of thumb for future guidance in the award of damages and interest rates.—The ostensible discord is not difficult to explain. The factual circumstances may have called for 80

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SUPREME COURT REPORTS ANNOTATED

0 Eastern Shipping Lines, Inc. vs. Court of Appeals 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. Same; Same; Same; When an obligation is breached, the contravenor can be held liable for damages.—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. Same; Same; Same; Interests in the Concept of Actual and Compensatory Damages; In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.—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. Same; Same; Same; Same; In case of other obligations, the interest on the amount of damages may be imposed at the discretion of the court at the rate of 6% per annum.—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. 81

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Eastern Shipping Lines, Inc. vs. Court of Appeals Same; Same; Same; Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest 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. —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.

PETITION for review of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Alojado & Garcia and Jimenea, Dala & Zaragoza for petitioner. 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, Inc. 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. 82

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SUPREME COURT REPORTS ANNOTATED Eastern Shipping Lines, Inc. vs. Court of Appeals

“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). “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: 1. “‘The issues are: 2. ‘1.Whether or not the shipment sustained losses/damages; 3. ‘2.Whether or not these losses/damages were sustained 83

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Eastern Shipping Lines, Inc. vs. Court of Appeals 1. while in the custody of defendants (in whose respective custody, if determinable); 2. ‘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 spillage was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adul-terated/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: 84

84

SUPREME COURT REPORTS ANNOTATED Eastern Shipping Lines, Inc. vs. Court of Appeals ‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A.Ordering defendants to pay plaintiff, jointly and severally: 1. 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. 2.P3,000.00 as attorney’s fees, and 3. 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— 1. 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; 2. 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

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Eastern Shipping Lines, Inc. vs. Court of Appeals

1. 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, Inc. 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 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to 1

_________________ 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. (1)Flood, storm, earthquake, lightning, or other natural disaster or calamity; 2. (2)Act of the public enemy in war, whether international or civil; 3. (3)Act or omission of the shipper or owner of the goods; 4. (4)The character of the goods or defects in the packing or in the containers; 5. (5)Order or act of competent public authority.

86

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Eastern Shipping Lines, Inc. vs. Court of Appeals

the consignee has, too, been passed upon by the Court. InFireman’s Fund Insurance, Co. vs. Metro Port Service, Inc.(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, decided on 15 May 1969, involved a suit for 2

3

_______________ 2

28 SCRA 65.

3

Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar,

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Eastern Shipping Lines, Inc. vs. Court of Appeals

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, L-6998, February 29, 1956,if the suit were for 4

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.’”(Italics supplied)

The case of Reformina vs. Tomol, rendered on 11 October 1985, was for “Recovery of Damages for Injury to Person and Loss of Property.” After trial, the lower court decreed: Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo. Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. 5

________________ 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.

88

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SUPREME COURT REPORTS ANNOTATED Eastern Shipping Lines, Inc. vs. Court of Appeals

“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: “(a)..... “x x x 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 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.” (Italics 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.” (Italics found in the text)—

should have, instead, been applied. This Court ruled: 6

_________________

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., Buena 89

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Eastern Shipping Lines, Inc. vs. Court of Appeals “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. “x x x 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 forbear-ances 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, 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 withlegal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 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. 7

8

________________ ventura 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.

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In Nakpil and Sons vs. Court of Appeals, 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) x x x to pay the plaintiff, x x x, the sum of P989,335.68 withinterest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment x x x.” 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: 9

“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 of 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%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid . Solidary costs against the defendant and third-party defen-dants (except Roman Ozaeta).” (Italics supplied)

A motion for reconsideration was filed by United Construction, contending that “the interest of twelve (12%) percent per annum imposed on the total amount of the monetary award was in contravention of law.” The Court ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: 10

“There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 x x x is applicable only in ________________ 9

10

160 SCRA 334. 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.

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Eastern Shipping Lines, Inc. vs. Court of Appeals 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.” (Italics supplied)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 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 Court 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.” (Italics supplied) 11

12

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167 SCRA 209.

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. 92

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SUPREME COURT REPORTS ANNOTATED Eastern Shipping Lines, Inc. vs. Court of Appeals

Reformina came into fore again in the 21 February 1989case of Florendo v.Ruiz 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: 13

“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.” (Italics 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: “x x x, 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. x x x. Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar.” (Italics 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, decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, 14

________________ 13

170 SCRA 461.

14

208 SCRA 542.

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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 x x x until fully paid.” Again, in applying the 6% legal interest per annum under the Civil Code, the Court declared: 15

“x x x, (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 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 forbearance of money, goods or credits, 16

__________________ 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

94

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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, 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 17

_________________

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. 95

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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. 1. 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. 18

19

20

2. 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. 21

22

23

___________________ 18

“ART.1157.Obligations arise from. 1. (1)Law; 2. (2)Contracts; 3. (3)Quasi-contracts; 4. (4)Acts or omissions punished by law; and 5. (5)Quasi-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. 96

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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 thediscretion 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 24

25

26

___________________ “However, the demand by the creditor shall not be necessary in order that delay may exist: 1. (1)When the obligation or the law expressly so declare; or 2. (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. (3)When demand would be useless, as when the obligor has rendered it beyond his power to perform. “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.” “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

24

of the damages may, in a proper case, be adjudicated in the discretion of the court.” “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

25

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

26

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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. 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 in deliberations. Petition partly granted. Notes.—Where the obligation arose from a contract or purchase and sale and not from a contract of loan or mutuum, the applicable rate is 6% per annum as provided in Article 2209 of the Civil Code and not the rate of 12% per annum as provided in Circular No. 416 (Pilipinas Bank vs. Court of Appeals, 225 SCRA 268 [1993]). While common carriers are required to observe extraordinary diligence and are presumed at fault, no such presumption applies to private carriers (Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476 [1993]). ——o0o—— 98

© Copyright 2016 Central Book Supply, Inc. All rights reserved. G.R. No. 189871. August 13, 2013.* DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents. Labor Law; Termination of Employment; Illegal Dismissals; 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.—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. 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 _______________ * EN BANC. 440

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Nacar vs. Gallery Frames

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 computation of monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final judgments. Same; Same; Same; Article 279 of the Labor Code 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.—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. Interest Rates; 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 Lines vs. Court of Appeals, 234 SCRA 78 (1994), 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.—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 Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) 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 441

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Nacar vs. Gallery Frames

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. Same; Monetary Board; The Bangko Sentral ng Pilipinas-Monetary Board 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.—In the recent case of Advocates for Truth in Lending, Inc. andEduardo B. Olaguer v. Bangko Sentral Monetary Board, 688 SCRA 530 (2013), 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.” Same; 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; 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 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.442

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Nacar vs. Gallery Frames

Same; 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.—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. Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, shall be 6% per annum from such finality until its satisfaction.—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 annumfrom such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Carlo A. Domingo for petitioner. Cabio Law Office and Associates for respondent. 443

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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 Decision 3 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 P158,919.92. 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: _______________ 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 p. 32. 3 Id., at pp. 79-84. 444

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Nacar vs. Gallery Frames

SEPARATION PAY Date Hired Rate Date of Decision Length of Service P198.00 x 26 days x 8 months = P41,184.00

= =

=

8

yrs.

Aug.

August = 18,

&

1

1990 P198/day 1998 month

BACKWAGES Date Dismissed Rate per Date of Decisions =

day Aug. 18, 1998

a) 1/24/97 P196.00/day x 12.36 mos. = P62,986.56 b) Prevailing P198.00

2/6/98 Rate

x TOTAL

to

26 = P95.933.76

=

to

8/18/98 per days

=

2/5/98

January

=

12.36

= x

day

6.4

mos.

24,

mos.

6.4 =

=

1997 P196.00

months P62,986.00 P32,947.20

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

1. To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation pay; 2. To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and 3. All other claims are hereby dismissed for lack of merit. SO ORDERED.4 _______________ 4 Id., at pp. 82-84. (Emphasis supplied.) 445

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Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 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 onCertiorari 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 P471,320.31. 12 _______________ 5 Id., at pp. 85-93. 6 Resolution dated July 24, 2000, id., at pp. 94-96. 7 Rollo, p. 35. 8 Id., at pp. 35-36. 9 Id., at p. 36. 10 Id., at p. 100. 11 Id. 12 Id., at p. 101. 446

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On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages of P95,933.36, 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 Resolution 17 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 P471,320.31. 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 P147,560.19. Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as de_______________ 13 Id., at pp. 97-102. 14 Id., at p. 37. 15 Id., at pp. 103-108. 16 Id., at pp. 109-113. 17 Id., at pp. 114-117. 18 Id., at p. 101. 447

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termined 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 P147,560.19, which petitioner eventually received. Petitioner then filed a Manifestation and Motion praying for the recomputation of the monetary award to include the appropriate interests.19 On May 10, 2005, the Labor Arbiter issued an Order 20granting the motion, but only up to the amount of P11,459.73. 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 P158,919.92 that should be executed. Thus, since petitioner already received P147,560.19, he is only entitled to the balance of P11,459.73. Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its Resolution 22 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. _______________ 19 Id., at p. 40. 20 Id., at pp. 65-69. 21 Id., at pp. 70-74. 22 Id., at pp. 60-64. 23 Id., at pp. 58-59. 448

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On September 23, 2008, the CA rendered a Decision 24denying 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 Resolution 25 dated October 9, 2009. Hence, the petition assigning the lone error: 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 compu_______________ 24 Id., at pp. 33-48. 25 Id., at p. 32. 26 Id., at p. 27. 449

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tation 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 P158,919.92. 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 _______________ 27 G.R. No. 172149, February 8, 2010, 612 SCRA 10. 450

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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. 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 451

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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 452

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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 recomputation 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 computation of monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final judgments. 30 _______________ 28 Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at pp. 21-23. 29 Id., at p. 25. 30 Id., at pp. 25-26. 453

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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. _______________ 31 Id., at p. 26. 32 G.R. No. 97412, July 12, 1994, 234 SCRA 78. 454

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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 thediscretion 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. _______________ 33 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at pp. 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 judg455

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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. Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 36

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37

38

ments, 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. 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 forbear 456

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and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly. 39

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 Circu_______________ ance 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 pp. 95-97. 41 G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547. 457

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lars 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. 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. 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 _______________ 42 Supra note 32. 458

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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. 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 thediscretion 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 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 459

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No. 98591, and the Resolution dated October 9, 2009 areREVERSED and SET ASIDE. Respondents areORDERED 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. Sereno (CJ.), Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe and Leonen, JJ., concur.

Judgment and resolution reversed and set aside. Notes.—There is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which explicitly allows an appeal of the decisions of the Bangko Sentral ng Pilipinas (BSP) Monetary Board to the Court of Appeals. (United Coconut Planters Bank vs. E. Ganzon, Inc., 591 SCRA 321 [2009]) Court is of the view that the Monetary Board approval is not required for Philippine Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks. (Philippine Deposit Insurance Corporation [PDIC] vs. Philippine Countryside Rural Bank, Inc., 640 SCRA 322 [2011]) ——o0o—— © Copyright 2016 Central Book Supply, Inc. All rights reserved.