PRUDENTIAL BAN & TRUST COMPANY V.

ABASOLO
GR NO 186738, September 27, 2010
DECISION
CARPIO MORALES, J.
Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz, Laguna (the
properties), registered as Original Certificates of Title Nos. RO-527 and RO-528. After she passed away, her
heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo
(respondent) empowering her to sell the properties.[2]

In her Answer,[5] Corazon denied that there was an agreement that the proceeds of the loan
would be paid directly to respondent. And she claimed that the vehicles represented full payment of the
properties, and had in fact overpaid P76,040.
Petitioner also denied that there was any arrangement between it and respondent that the proceeds of
the loan would be released to her.[6] It claimed that it may process a loan application of the registered owner
of the real property who requests that proceeds of the loan or part thereof be payable directly to a third party
[but] the applicant must submit a letter request to the Bank.[7]
On pre-trial, the parties stipulated that petitioner was not a party to the contract of sale between
respondent and Corazon; that there was no written request that the proceeds of the loan should be paid to
respondent; and that respondent received five vehicles as partial payment of the properties. [8]
Despite notice, Corazon failed to appear during the trial to substantiate her claims.

Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold
for P2,448,960, but as she had no available cash, she broached the idea of first mortgaging the properties to
petitioner Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly to
respondent. Respondent agreed to the proposal.
On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto
Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to mortgage the
properties, and for her (respondent) to act as one of the co-makers so that the proceeds could be released to
both of them.
To guarantee the payment of the property, Corazon executed on August 25, 1995 a Promissory Note
for P2,448,960 in favor of respondent.
By respondents claim, in October 1995, Mendiola advised her to transfer the properties first to
Corazon for the immediate processing of Corazons loan application with assurance that the proceeds thereof
would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee.
Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the properties in favor
of Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160
were issued in the name of Corazon.

By Decision of March 12, 2004,[9] Branch 91 of the Sta. Cruz, Laguna RTC rendered judgment in
favor of respondent and against Corazon who was made directly liable to respondent, and against petitioner
who was made subsidiarily liable in the event that Corazon fails to pay. Thus the trial court disposed:
WHEREFORE, premises considered, finding the plaintiff has established her claim against the defendants,
Corazon Marasigan and Prudential Bank and Trust Company, judgment is hereby rendered in favor of the
plaintiff ordering:
Defendant Corazon Marasigan to pay the plaintiff the amount of P1,783,960.00
plus three percent (3%) monthly interest per month from August 25, 1995 until fully
paid. Further, to pay the plaintiff the sum equivalent to twenty percent five [sic] (25%)
of P1,783,960.00 as attorneys fees.
Defendant Prudential Bank and Trust Company to pay the plaintiff the amount
of P1,783,960.00 or a portion thereof plus the legal rate of interest per annum until
fully paid in the event that Defendant Corazon Marasigan fails to pay the said
amount or a portion thereof.
Other damages claimed not duly proved are hereby dismissed.

Corazons application for a loan with PBTCs Tondo Branch was approved on December 1995. She
thereupon executed a real estate mortgage covering the properties to secure the payment of the loan. In the
absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Corazon.

So Ordered.[10] (emphasis in the original; underscoring partly in the original,

partly supplied)

Respondent later got wind of the approval of Corazons loan application and the release of its proceeds
to Corazon who, despite repeated demands, failed to pay the purchase price of the properties.

In finding petitioner subsidiarily liable, the trial court held that petitioner breached its understanding to
release the proceeds of the loan to respondent:

Respondent eventually accepted from Corazon partial payment in kind consisting of one owner
type jeepney and four passenger jeepneys,[3] plus installment payments, which, by the trial courts
computation, totaled P665,000.
In view of Corazons failure to fully pay the purchase price, respondent filed a complaint for
collection of sum of money and annulment of sale and mortgage with damages, against Corazon and PBTC
(hereafter petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna.[4]

Liwayway claims that the bank should also be held responsible for breach
of its obligation to directly release to her the proceeds of the loan or part thereof as
payment for the subject lots. The evidence shows that her claim is valid. The Bank had
such an obligation as proven by evidence. It failed to rebut the credible testimony of
Liwayway which was given in a frank, spontaneous, and straightforward manner and
withstood the test of rigorous cross-examination conducted by the counsel of the
Bank. Her credibility is further strengthened by the corroborative testimony of
Miguela delos Reyes who testified that she went with Liwayway to the bank for
several times. In her presence, Norberto Mendiola, the head of the loan department,

instructed Liwayway to transfer the title over the subject lots to Corazon to facilitate
the release of the loan with the guarantee that Liwayway will be paid upon the release
of the proceeds.
Further, Liwayway would not have executed the deed of sale in favor of
Corazon had Norberto Mendiola did not promise and guarantee that the proceeds of
the loan would be directly paid to her. Based on ordinary human experience, she
would not have readily transferred the title over the subject lots had there been no
strong and reliable guarantee. In this case, what caused her to transfer title is the
promise and guarantee made by Norberto Mendiola that the proceeds of the loan
would be directly paid to her. [11] (emphasis underscoring supplied)
On appeal, the Court of Appeals by Decision of January 14, 2008 [12], affirmed the trial courts
decision with modification on the amount of the balance of the purchase price which was reduced
from P1,783,960 to P1,753,960. It disposed:
WHEREFORE, premises considered, the assailed Decision dated March
12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91, is AFFIRMED
WITH MODIFICATION as to the amount to be paid which is P1,753,960.00.
SO ORDERED.[13] (emphasis in the original; underscoring supplied)
Petitioners motion for reconsideration having been denied by the appellate court by Resolution
of February 23, 2009, the present petition for review was filed.
The only issue petitioner raises is whether it is subsidiarily liable.
The petition is meritorious.
In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no
inherent obligation of petitioner to release the proceeds of the loan to her.

In order to identify and monitor loans that a bank has extended, a system of documentation is
necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay
the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if
Mendiola issued a bank guarantee, even if no request to that effect was made.
The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioners
cause:
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. (underscoring supplied)
For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor
upon her must be present. A written request would have sufficed to prove this, given the nature of a banking
business, not to mention the amount involved.
Since it has not been established that petitioner had an obligation to Liwayway, there is no breach
to speak of. Liwayways claim should only be directed against Corazon. Petitioner cannot thus be held
subisidiarily liable.
To the Court, Liwayway did not rely on Mendiolas representations, even if he indeed made
them. The contract for Liwayway to sell to Corazon was perfected from the moment there was a meeting of
minds upon the properties-object of the contract and upon the price. Only the source of the funds to pay the
purchase price was yet to be resolved at the time the two inquired from Mendiola. Consider Liwayways
testimony:

To a banking institution, well-defined lending policies and sound lending practices are
essential to perform its lending function effectively and minimize the risk inherent in any extension of credit.

Q:

We are referring to the promissory note which you aforementioned a while

ago, why did this promissory note come about?

Thus, Section X302 of the Manual of Regulations for Banks provides:

A:

Because the negotiation was already completed, sir, and the deed of sale will
have to be executed, I asked the defendant (Corazon) to execute the
promissory note first before I could execute a deed of absolute sale, for
assurance that she really pay me, sir.[14] (emphasis and underscoring
supplied)

X-302. To ensure that timely and adequate management action is taken to

maintain the quality of the loan portfolio and other risk assets and that adequate loss
reserves are set up and maintained at a level sufficient to absorb the loss inherent in
the loan portfolio and other risk assets, each bank shall establish a system of
identifying and monitoring existing or potential problem loans and other risk assets
and of evaluating credit policies vis--vis prevailing circumstances and emerging
portfolio trends. Management must also recognize that loss reserve is a stabilizing
factor and that failure to account appropriately for losses or make adequate provisions
for estimated future losses may result in misrepresentation of the banks financial
condition.

That it was on Corazons execution of a promissory note that prompted Liwayway to finally execute the
Deed of Sale is thus clear.
The trial Courts reliance on the doctrine of apparent authority that the principal, in this case
petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, does not
lie. Prudential Bank v. Court of Appeals[15] instructs:

[A] banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetuate fraud upon his principal or some
person, for his own ultimate benefit.[16] (underscoring supplied)
The onus probandi that attempt to commit fraud attended petitioners employee Mendiolas acts
and that he abused his authority lies on Liwayway. She, however, failed to discharge the onus. It bears
noting that Mendiola was not privy to the approval or disallowance of Corazons application for a loan nor
that he would benefit by the approval thereof.
Aside from Liwayways bare allegations, evidence is wanting to show that there was collusion
between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the allegation of fraud is
specifically directed against Corazon.[17]
IN FINE, Liwayways cause of action lies against only Corazon.
WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it
holds petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands), subsidiary liable
in case its co-defendant Corazon Marasigan, who did not appeal the trial courts decision, fails to pay the
judgment
debt,
is REVERSED and SET
ASIDE. The
complaint
against
petitioner
is
accordingly DISMISSED.
SO ORDERED.

EASTERN SHIPPING LINES, INC., petitioner,

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

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

The 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 brokerforwarder for damages sustained by a shipment while in defendants' custody, filed by
the insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama,
Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern
Shipping
Lines
under
Bill
of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance
Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto
the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said
to be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment
from defendant Metro Port Service, Inc., one drum opened and without seal (per
"Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries
of the shipment to the consignee's warehouse. The latter excepted to one drum which
contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order
Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to pay
the same (Exhs. H, I, J, K, L).
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. 8586, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

The issues are:

1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in
the custody of defendants (in whose respective custody, if
determinable);
3. Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34;
Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment
sustained losses/damages. The two drums were shipped in good
order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum
that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the
losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was observed that
"one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report
further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on
January 7, 1982, one drum was found opened without seal, cello
bag partly torn but contents intact. Net unrecovered spillages
was
15 kgs. The report went on to state that when the drums reached
the consignee, one drum was found with adulterated/faked

contents. It is obvious, therefore, that these losses/damages

occurred before the shipment reached the consignee while under
the successive custodies of defendants. Under Art. 1737 of the
New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full
force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of
destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art.
1738, NCC). Defendant Eastern Shipping's own exhibit, the
"Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern)
states that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of
12% per annum from October 1, 1982, the date of filing of this
complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF
value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or container in
no case to exceed P5,000.00 each, pursuant to Section 6.01 of
the Management Contract);
2. P3,000.00 as attorney's fees, and

The
Court
a quo.

of

Appeals

thus

affirmed in

toto the

judgment

of

the

court

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH
THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF
PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF
THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL
COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel.
Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai
vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs.
Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in
Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case.

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 question of charging both the carrier and the arrastre operator with the obligation of properly delivering
the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro
Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable
in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of
a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967].
The relationship between the consignee and the common carrier is similar to that of
the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al.,
107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the goods in good
condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker
are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts
in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines,

which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be
held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take
note, is that "there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major rulings of this Court:
The
early
case
of Malayan
Insurance
Co.,
Inc.,
vs. Manila
Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20.
This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of
facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial
court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad
Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date
the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed,inter
alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation,
is the legal rate. Such interest normally is allowable from the date of demand, judicial
or extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera
vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and
not known until definitely ascertained, assessed and determined by the courts after
proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis
supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury
to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay
jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00
which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a

result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid.
When the appellate court's decision became final, the case was remanded to the lower court for
execution, and this was when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari,
the
petitioners
contended
that
Central
Bank
Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that
the rate of interest for the loan, or forbearance of any money, goods, or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest,
shall be twelve (12%) percent per annum. This Circular shall take effect immediately.
(Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or forbearance of any money, goods
or credits does not fall within the coverage of the said law for it is not within the ambit
of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in
an Action for Damages for injury to persons and loss of property and does not involve
any loan, much less forbearances of any money, goods or credits. As correctly argued
by the private respondents, the law applicable to the said case is Article 2209 of the
New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court awarded
private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal
interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this
Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time computation
thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising
from
the
collapse
of
a
building,
ordered,

inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968,
the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount
granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court
for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to render
a decision imposing, as We do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil
Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals) and
an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance
of
any
money,
goods
or
credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans
or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v.
Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It
is true that in the instant case, there is neither a loan or a forbearance, but then no
interest is actually imposed provided the sums referred to in the judgment are paid
upon the finality of the judgment. It is delay in the payment of such final judgment, that
will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on
the total sum, from the filing of the complaint until paid; in other words, as part of the
judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis
supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 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 12 thus set aside the decision of the appellate court and rendered a new one,
"ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as
moral
damages,
with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial
court moral and exemplary damages without, however, providing any legal interest thereon. When the
decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at
the legal rate from the date of the filing of the complaint until fully paid(Emphasis
supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the
trial court, and an entry of judgment was made. The writ of execution issued by the trial court
directed that only compensatory damages should earn interest at 6% per annum from the date of
the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the
legal rate"from the time of the filing of the complaint. . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a breach of employment contract
like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the
time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting
a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private
respondents certain sums of money as just compensation for their lands so expropriated "with legal interest
thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the
Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or
credits but expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the 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 16 of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay
in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one
of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in
holding that the running of the legal interest should be from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should be from the date of the
decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6%
interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each
case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation,
to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per
annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
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.

G.R. No. 154878

March 16, 2007

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

CAROLYN M. GARCIA, Petitioner,

vs.
RICA MARIE S. THIO, Respondent.

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26,
1995 until fully paid;

DECISION

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

CORONA, J.:

3. P100,000.00 as and for attorneys fees; and

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002
resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

4. P50,000.00 as and for actual damages.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a
crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24,
April 26, June 26 and July 26, all in 1995) the amount of US$3,000 6 and P76,5007 on July 26,8 August 26,
September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount
ofP500,000, also payable to the order of Marilou Santiago. 10 Consequently, petitioner received from
respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5,
1995.11
According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money
and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of
US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon
at 4% a month from November 5, 1995, plus attorneys fees and actual damages. 12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with
interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of
this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount
of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5,
1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was
executed since petitioner and respondent were close friends at the time. 15 Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite
repeated demands.161awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the
crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but
to accommodate petitioners request that respondent use her own checks instead of Santiagos. 18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a
monthly interest of 4%:20

For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the
parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent]
indeed borrowed money from her. There is nothing in the record that shows that [respondent] received
money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check
dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a
CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of
Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being
crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou
Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank;
(c) and the act of crossing the check serves as warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is
not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee
in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a
payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of
Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the
former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that
existed between the parties. x x x (emphasis supplied)22
Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA
(which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held
that there werecontracts of loan) are contradictory.24

since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would
replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent
would put herself in a position where she would be compelled to pay interest, from her own funds, for loans
she allegedly did not contract. We declared in one case that:

The petition is impressed with merit.

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be
believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as
the common experience of mankind can approve as probable under the circumstances. We have no test of the
truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is
repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the
contract.25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of
the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the
checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay
the creditor an equal amount.26
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question
to be answered is: who borrowed money from petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to
Santiago.27She maintains that it was also upon respondents instruction that both checks were delivered to her
(respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore, she argues that once
respondent received the checks, the latter had possession and control of them such that she had the choice to
either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner. 29
We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual
or constructive possession or control of another.30 Although respondent did not physically receive the
proceeds of the checks, these instruments were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly improbable that
petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any
written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on
the other hand, already had transactions with Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties
list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest
rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize
a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each
(peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she
also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she
merely accommodated petitioners request for her to issue her own checks to cover the interest payments

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who
was listed as one of her (Santiagos) creditors.38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The
presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was not able
to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of
US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent
liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000
andP500,000 loans respectively. There was no written proof of the interest payable except for
the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code
provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209
of the Civil Code. It is well-settled that:
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. 41
Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21,
1995, the date when she received petitioners demand letter.42 From the finality of the decision until it is fully
paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a
forbearance of credit.43
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the
RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The
February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with
the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000
and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total
amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual
damages and attorneys fees is deleted.

G.R. No. 189871

August 13, 2013

Date of Decisions

DARIO NACAR, PETITIONER,

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

Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

DECISION

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20

TOTAL

= P95.933.76

PERALTA, J.:
1

This is a petition for review on certiorari assailing the Decision 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 petitioners
motion for reconsideration.

xxxx
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 complainants 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:

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive
dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos
and 56/100 (P62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three
and 36/100 (P95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the 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

SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the
CA issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was
likewise denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27,
2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear.10

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES
Date Dismissed

January 24, 1997

Rate per day

P196.00

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

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect
from respondents the total amount of 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 ofP95,933.36, 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 determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of
his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that
was due to petitioner in the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to
include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount
ofP11,459.73. 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
receivedP147,560.19, 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 Resolution22 dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the
Resolution23dated January 31, 2007.

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
Arbiters decision, the same is not final until reinstatement is made or until finality of the decision, in case of
an award of separation pay. Petitioner maintains that considering that the October 15, 1998 decision of the
Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of the Supreme Court
in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for the
computation of the backwages and separation pay should be on May 27, 2002 and not when the decision of
the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly stated that the separation pay and
backwages are "computed only up to [the] promulgation of this decision," and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in the
total amount ofP158,919.92. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and executory. Respondents
contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of
the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on
immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of the
computation of the awards made, and whether this violated the principle of immutability of judgment. Like
in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited case that
the decision already provided for the computation of the payable separation pay and backwages due and did
not further order the computation of the monetary awards up to the time of the finality of the judgment. Also
in Session Delights, the dismissed employee failed to appeal the decision of the labor arbiter. The Court
clarified, thus:

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
24

On September 23, 2008, the CA rendered a Decision denying the petition. The CA opined that since
petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing left
to be done except to enforce the said judgment. Consequently, it can no longer be modified in any respect,
except to correct clerical errors or mistakes.
25

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

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 recomputed. This is the part, too, that the petitioner now posits should no longer be re-computed because the
computation is already in the labor arbiter's decision that the CA had affirmed. The public and private
respondents, on the other hand, posit that a re-computation is necessary because the relief in an illegal
dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality of
the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also
made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules
of Procedure which requires that a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable,
shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision.
As we noted above, this implication is apparent from the terms of the computation itself, and no question
would have arisen had the parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC
which, in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by
the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely
filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming
the payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned to the labor
arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original
labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read
the figures originally ordered to be paid to be the computation due had the case been terminated and
implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the award to include the
separation pay and the backwages due up to the finality of the CA decision that fully terminated the case on
the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA
decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision
now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered
the labor arbiter's original decision in accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary consequences; the second part is the
computation of the awards or monetary consequences of the illegal dismissal, computed as of the time of the
labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed
by the petitioner, no essential change is made by a recomputation as this step is a necessary consequence that
flows from the nature of the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A
recomputation (or an original computation, if no previous computation has been made) is a part of the law
specifically, Article 279 of the Labor Code and the established jurisprudence on this provision that is read
into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is
the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279
provides for the consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the finality of
the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law decrees.
In allowing separation pay, the final decision effectively declares that the employment relationship ended so
that separation pay and backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and,

accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which
reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern
the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern
Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko
Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue
and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans
of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not
be disturbed and shall continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CAG.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up
to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and
executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay
per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May
27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits
awarded and due to petitioner in accordance with this Decision.

42

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 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.1wphi1
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:

SO ORDERED.