Legal Interest Rates Modified by New Supreme Court Ruling
six percent (6%). The Supreme Court held that the BSP is authorized to set
interest rates and to enforce its Circulars, citing its previous ruling in Advocates
The Supreme Court has recently promulgated a decision modifying the rule on
for Truth in Lending Act, Inc. vs. Bangko Sentral Monetary Board, G.R. No.
interest rates awarded in the form of actual and compensatory damages.
192986 (15 January 2013).
In a decision penned by Justice Peralta, the Supreme Court in Nacar vs. Gallery
G.R. No. 189871
August 13, 2013
Frames, G.R. No. 189871 (13 August 2013), laid down a uniform rate of six
percent (6%) for the award of interest in the form of actual and compensatory
damages. The foregoing rate shall take effect on 01 July 2013.
DARIO
NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
The Supreme Courts pronouncement in Nacar vs. Gallery Frames modified the
DECISION
previous guidelines laid down in Eastern Shipping Lines, Inc. vs. Court of
PERALTA, J.:
Appeals, G.R. No. 97412 (12 July 1994). Previously, in Eastern Shipping Lines,
Inc. vs. Court of Appeals, the Supreme Court held that for loans and forbearance
of money, in the absence of stipulation, the rate of interest shall be twelve percent
(12%) while for obligations not constituting a loan or forbearance of money, the
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
2
Resolution dated October 9, 2009 denying petitioners motion for reconsideration.
The factual antecedents are undisputed.
rate of interest shall be six percent (6%). When the judgment of the court
becomes final and executory, the rate of interest shall be twelve percent (12%)
since it is akin to a forbearance of money. Now, with Nacar vs. Gallery Frames,
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.
the interest rate, regardless of the source of the obligation, is pegged at a uniform
rate of six percent (6%).
The Supreme Court further held in Nacar vs. Gallery Frames that for judgments
On October 15, 1998, the Labor Arbiter rendered a Decision 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:
which became final and executory prior to 01 July 2013, they shall not be
disturbed and shall continue to apply the rates provided for therein.
The Supreme Court cited as basis BSP-MB Resolution No. 796 dated 16 May
2013 and BSP Circular No. 799, Series of 2013, which pegged the interest rates
for loans and forbearance of money, goods and credits, as well as judgments, at
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:
SO ORDERED.
SEPARATION PAY
Date Hired
August 1990
Rate
P198/day
Date of Decision
Aug. 18, 1998
Length of Service
8 yrs. & 1 month
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
5
Resolution dated February 29, 2000. Accordingly, the NLRC sustained the decision
of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was
6
denied.
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
7
May 8, 2001.
P198.00 x 26 days x 8 months = P41,184.00
BACKWAGES
Date Dismissed
January 24, 1997
Rate per day
P196.00
Date of Decisions
Aug. 18, 1998
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
8
petition in the Resolution dated April 17, 2002.
An Entry of Judgment was later issued certifying that the resolution became final and
9
executory on May 27, 2002. The case was, thereafter, referred back to the Labor
Arbiter. A pre-execution conference was consequently scheduled, but respondents
10
failed to appear.
a) 1/24/97 to 2/5/98 = 12.36 mos.
P196.00/day x 12.36 mos.
= P62,986.56
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
11
the finality of the Resolution of the Supreme Court on May 27, 2002. Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an
12
updated amount in the sum of P471,320.31.
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day
= P62,986.00
P198.00 x 26 days x 6.4 mos.
= P32,947.20
TOTAL
= P95.933.76
13
xxxx
WHEREFORE, premises considered, judgment is hereby rendered
respondents guilty of constructive dismissal and are therefore, ordered:
finding
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.
On December 2, 2002, a Writ of Execution 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
14
be altered or amended anymore. On January 13, 2003, the Labor Arbiter issued an
15
16
Order denying the motion. Thus, an Alias Writ of Execution was issued on January
14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
17
Resolution 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
18
award in the sum of P471,320.31.
Petitioner filed a Motion for Reconsideration, but it was denied in the
25
Resolution dated October 9, 2009.
Hence, the petition assigning the lone error:
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
19
monetary award to include the appropriate interests.
20
On May 10, 2005, the Labor Arbiter issued an Order 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.
21
Petitioner then appealed before the NLRC, which appeal was denied by the NLRC
22
in its Resolution dated September 27, 2006. Petitioner filed a Motion for
23
Reconsideration, but it was likewise denied in the Resolution dated January 31,
2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP
No. 98591.
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
26
EXPRESSED IN THE BODY OF THE SAME DECISION.
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.
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.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods
27
v. Court of Appeals (Sixth Division), wherein the issue submitted to the Court for
resolution was the propriety of the computation of the awards made, and whether this
violated the principle of immutability of judgment. Like in the present case, it was a
distinct feature of the judgment of the Labor Arbiter in the above-cited case that the
decision already provided for the computation of the payable separation pay and
backwages due and did not further order the computation of the monetary awards up
to the time of the finality of the judgment. Also in Session Delights, the dismissed
employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of
execution of the labor arbiter's original computation of the awards made, pegged as of
the time the decision was rendered and confirmed with modification by a final CA
decision, is legally proper. The question is posed, given that the petitioner did not
immediately pay the awards stated in the original labor arbiter's decision; it delayed
payment because it continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds
from the way the original labor arbiter framed his decision. The decision consists
essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been
confirmed with finality. This is the finding of the illegality of the dismissal and the
awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and
legal interests.
The second part is the computation of the awards made. On its face, the computation
the labor arbiter made shows that it was time-bound as can be seen from the figures
used in the computation. This part, being merely a computation of what the first part
of the decision established and declared, can, by its nature, be re-computed. This is
the part, too, that the petitioner now posits should no longer be re-computed because
the computation is already in the labor arbiter's decision that the CA had affirmed.
The public and private respondents, on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal decision goes all the way up to
reinstatement if reinstatement is to be made, or up to the finality of the decision, if
separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal
had taken place, also made a computation of the award, is understandable in light of
Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a
computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as
far as practicable, shall embody in any such decision or order the detailed and full
amount awarded.
Clearly implied from this original computation is its currency up to the finality of the
labor arbiter's decision. As we noted above, this implication is apparent from the
terms of the computation itself, and no question would have arisen had the parties
terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e.,
on the finding of illegality as well as on all the consequent awards made. Hence, the
petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's
decision. By law, the NLRC decision is final, reviewable only by the CA on
jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional
grounds through a timely filed Rule 65 petition for certiorari. The CA decision, finding
that NLRC exceeded its authority in affirming the payment of 13th month pay and
indemnity, lapsed to finality and was subsequently returned to the labor arbiter of
origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal
portion of the original labor arbiter's decision, the implementing labor arbiter ordered
the award re-computed; he apparently read the figures originally ordered to be paid to
be the computation due had the case been terminated and implemented at the labor
arbiter's level. Thus, the labor arbiter re-computed the award to include the separation
pay and the backwages due up to the finality of the CA decision that fully terminated
the case on the merits. Unfortunately, the labor arbiter's approved computation went
beyond the finality of the CA decision (July 29, 2003) and included as well the
payment for awards the final CA decision had deleted - specifically, the proportionate
13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as
it essentially considered the labor arbiter's original decision in accordance with its
basic component parts as we discussed above. To reiterate, the first part contains the
finding of illegality and its monetary consequences; the second part is the
computation of the awards or monetary consequences of the illegal dismissal,
28
computed as of the time of the labor arbiter's original decision.
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
29
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 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
30
judgments.
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
31
separation pay and backwages are to be computed up to that point.
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping
32
Lines, Inc. v. Court of Appeals, 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
33
an equivalent to a forbearance of credit.
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
34
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of
35
Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, 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.
36
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
37
38
39
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 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
40
Shipping Lines 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.
41
Olaguer v. Bangko Sentral Monetary Board, this Court affirmed the authority of the
BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that "the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory
prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of
42
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, quasicontracts, 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:
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.
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the
Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9,
2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in
G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the
rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until their full satisfaction.The Labor Arbiter is
hereby ORDERED to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with this Decision.
SO ORDERED.
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
