G.R. No.

L-7593

March 27, 1913

THE UNITED STATES, plaintiff-appellee,

vs.
JOSE M. IGPUARA, defendant-appellant.
W. A. Kincaid, Thos. L. Hartigan, and Jose Robles Lahesa for appellant.
Office of the Solicitor-General Harvey for appellee.
ARELLANO, C.J.:
The defendant therein is charged with the crime of estafa, for having
swindled Juana Montilla and Eugenio Veraguth out of P2,498 Philippine
currency, which he had take on deposit from the former to be at the latter's
disposal. The document setting forth the obligation reads:
We hold at the disposal of Eugenio Veraguth the sum of two thousand four
hundred and ninety-eight pesos (P2,498), the balance from Juana Montilla's
sugar. Iloilo, June 26, 1911, Jose Igpuara, for Ramirez and Co.
The Court of First Instance of Iloilo sentenced the defendant to two years of
presidio correccional, to pay Juana Montilla P2,498 Philippine currency, and
in case of insolvency to subsidiary imprisonment at P2.50 per day, not to
exceed one-third of the principal penalty, and the costs.
The defendant appealed, alleging as errors: (1) Holding that the document
executed by him was a certificate of deposit; (2) holding the existence of a
deposit, without precedent transfer or delivery of the P2,498; and (3)
classifying the facts in the case as the crime of estafa.
A deposit is constituted from the time a person receives a thing
belonging to another with the obligation of keeping and returning it.
(Art. 1758, Civil Code.)
That the defendant received P2,498 is a fact proven. The defendant drew up
a document declaring that they remained in his possession, which he could
not have said had he not received them. They remained in his possession,
surely in no other sense than to take care of them, for they remained has no
other purpose. They remained in the defendant's possession at the disposal
of Veraguth; but on August 23 of the same year Veraguth demanded for him

through a notarial instrument restitution of them, and to date he has not

restored them.
The appellant says: "Juana Montilla's agent voluntarily accepted the sum of
P2,498 in an instrument payable on demand, and as no attempt was made to
cash it until August 23, 1911, he could indorse and negotiate it like any other
commercial instrument. There is no doubt that if Veraguth accepted the
receipt for P2,498 it was because at that time he agreed with the defendant
to consider the operation of sale on commission closed, leaving the collection
of said sum until later, which sum remained as a loan payable upon
presentation of the receipt." (Brief, 3 and 4.)
Then, after averring the true facts: (1) that a sales commission was
precedent; (2) that this commission was settled with a balance of P2,498 in
favor of the principal, Juana Montilla; and (3) that this balance remained in
the possession of the defendant, who drew up an instrument payable on
demand, he has drawn two conclusions, both erroneous: One, that the
instrument drawn up in the form of a deposit certificate could be indorsed or
negotiated like any other commercial instrument; and the other, that the sum
of P2,498 remained in defendant's possession as a loan.
It is erroneous to assert that the certificate of deposit in question is
negotiable like any other commercial instrument: First, because every
commercial instrument is not negotiable; and second, because only
instruments payable to order are negotiable. Hence, this instrument not being
to order but to bearer, it is not negotiable.
It is also erroneous to assert that sum of money set forth in said certificate is,
according to it, in the defendant's possession as a loan. In a loan the lender
transmits to the borrower the use of the thing lent, while in a deposit the use
of the thing is not transmitted, but merely possession for its custody or safekeeping.
In order that the depositary may use or dispose oft he things deposited, the
depositor's consent is required, and then:
The rights and obligations of the depositary and of the depositor shall
cease, and the rules and provisions applicable to commercial loans,
commission, or contract which took the place of the deposit shall be
observed. (Art. 309, Code of Commerce.)

The defendant has shown no authorization whatsoever or the consent of the

depositary for using or disposing of the P2,498, which the certificate
acknowledges, or any contract entered into with the depositor to convert the
deposit into a loan, commission, or other contract.
That demand was not made for restitution of the sum deposited, which could
have been claimed on the same or the next day after the certificate was
signed, does not operate against the depositor, or signify anything except the
intention not to press it. Failure to claim at once or delay for sometime in
demanding restitution of the things deposited, which was immediately due,
does not imply such permission to use the thing deposited as would convert
the deposit into a loan.
Article 408 of the Code of Commerce of 1829, previous to the one now in
force, provided:
The depositary of an amount of money cannot use the amount, and if
he makes use of it, he shall be responsible for all damages that may
accrue and shall respond to the depositor for the legal interest on the
amount.
Whereupon the commentators say:
In this case the deposit becomes in fact a loan, as a just punishment
imposed upon him who abuses the sacred nature of a deposit and as
a means of preventing the desire of gain from leading him into
speculations that may be disastrous to the depositor, who is much
better secured while the deposit exists when he only has a personal
action for recovery.
According to article 548, No. 5, of the Penal Code, those who to the
prejudice of another appropriate or abstract for their own use money,
goods, or other personal property which they may have received as
a deposit, on commission, or for administration, or for any other
purpose which produces the obligation of delivering it or returning it,
and deny having received it, shall suffer the penalty of the preceding
article," which punishes such act as the crime of estafa. The
corresponding article of the Penal Code of the Philippines in 535, No.
5.
In a decision of an appeal, September 28, 1895, the principle was laid down
that: "Since he commits the crime of estafa under article 548 of the Penal
Code of Spain who to another's detriment appropriates to himself or

abstracts money or goods received on commission for delivery, the court

rightly applied this article to the appellant, who, to the manifest detriment of
the owner or owners of the securities, since he has not restored them,
willfully and wrongfully disposed of them by appropriating them to himself or
at least diverting them from the purpose to which he was charged to devote
them."
It is unquestionable that in no sense did the P2,498 which he willfully and
wrongfully disposed of to the detriments of his principal, Juana Montilla, and
of the depositor, Eugenio Veraguth, belong to the defendant.
Likewise erroneous is the construction apparently at tempted to be given to
two decisions of this Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580,
and U. S. vs. Morales and Morco, 15 Phil. Rep., 236) as implying that what
constitutes estafa is not the disposal of money deposited, but denial of
having received same. In the first of said cases there was no evidence that
the defendant had appropriated the grain deposited in his possession.
On the contrary, it is entirely probable that, after the departure of the
defendant from Libmanan on September 20, 1898, two days after the
uprising of the civil guard in Nueva Caceres, the rice was seized by
the revolutionalists and appropriated to their own uses.
In this connection it was held that failure to return the thing deposited was not
sufficient, but that it was necessary to prove that the depositary had
appropriated it to himself or diverted the deposit to his own or another's
benefit. He was accused or refusing to restore, and it was held that the code
does not penalize refusal to restore but denial of having received. So much
for the crime of omission; now with reference to the crime of commission, it
was not held in that decision that appropriation or diversion of the thing
deposited would not constitute the crime of estafa.
In the second of said decisions, the accused "kept none of the proceeds of
the sales. Those, such as they were, he turned over to the owner;" and there
being no proof of the appropriation, the agent could not be found guilty of the
crime of estafa.
Being in accord and the merits of the case, the judgment appealed from is
affirmed, with costs.
Torres, Johnson and Trent, JJ., concur.

VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch
of the Philippine National Bank, Venancio Concepcion, President of the
Philippine National Bank, between April 10, 1919, and May 7, 1919,
authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in
the amount of P300,000. This special authorization was essential in view of
the memorandum order of President Concepcion dated May 17, 1918,
limiting the discretional power of the local manager at Aparri, Cagayan, to
grant loans and discount negotiable documents to P5,000, which, in certain
cases, could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en
C.," the only security required consisting of six demand notes. The notes,
together with the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000.
Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion,
P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and
Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000.
Member Miguel S. Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine
National Bank and as member of the board of directors of this bank, was
charged in the Court of First Instance of Cagayan with a violation of section
35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor,
Judge of First Instance, and was sentenced to imprisonment for one year
and six months, to pay a fine of P3,000, with subsidiary imprisonment in case
of insolvency, and the costs.

G.R. No. L-19190

November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned,
to which reference must hereafter repeatedly be made, reads as follows:
"The National Bank shall not, directly or indirectly, grant loans to any of the
members of the board of directors of the bank nor to agents of the branch
banks." Section 49 of the same Act provides: "Any person who shall violate
any of the provisions of this Act shall be punished by a fine not to exceed ten
thousand pesos, or by imprisonment not to exceed five years, or by both
such fine and imprisonment." These two sections were in effect in 1919 when
the alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the
trial court. These errors they have argued adroitly and exhaustively in their

printed brief, and again in oral argument. Attorney-General Villa-Real, in an

exceptionally accurate and comprehensive brief, answers the proposition of
appellant one by one.
The question presented are reduced to their simplest elements in the opinion
which follows:

demand notes signed by the firm "Puno y Concepcion, S. en C." were not
discount paper but were mere evidences of indebtedness, because (1)
interest was not deducted from the face of the notes, but was paid when the
notes fell due; and (2) they were single-name and not double-name paper.

I.
Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

The facts of the instant case having relation to this phase of the argument
are not essentially different from the facts in the Binalbagan Estate case. Just
as there it was declared that the operations constituted a loan and not a
discount, so should we here lay down the same ruling.

Counsel argue that the documents of record do not prove that authority to
make a loan was given, but only show the concession of a credit. In this
statement of fact, counsel is correct, for the exhibits in question speak of a
"credito" (credit) and not of a " prestamo" (loan).

III.
Was the granting of a credit of P300,000 to the copartnership, "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, an "indirect loan" within the meaning of section 35 of Act No.
2747?

The "credit" of an individual means his ability to borrow money by virtue of

the confidence or trust reposed by a lender that he will pay what he may
promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A
"loan" means the delivery by one party and the receipt by the other party of a
given sum of money, upon an agreement, express or implied, to repay the
sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y.,
146, 167.) The concession of a "credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the "credit,"

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C."

was not an "indirect loan." In this connection, it should be recalled that the
wife of the defendant held one-half of the capital of this partnership.

II.
Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C.," by Venancio Concepcion, President of the
Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of
a "loan," it does not prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the
National Bank, inquired of the Insular Auditor whether section 37 of Act No.
2612 was intended to apply to discounts as well as to loans. The ruling of the
Acting Insular Auditor, dated August 11, 1916, was to the effect that said
section referred to loans alone, and placed no restriction upon discount
transactions. It becomes material, therefore, to discover the distinction
between a "loan" and a "discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as
they do, out of an actual, live, transaction. But in its last analysis, to discount
a paper is only a mode of loaning money, with, however, these distinctions:
(1) In a discount, interest is deducted in advance, while in a loan, interest is
taken at the expiration of a credit; (2) a discount is always on double-name
paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law
covers loans and not discounts, yet the conclusion is inevitable that the

In the interpretation and construction of statutes, the primary rule is to

ascertain and give effect to the intention of the Legislature. In this instance,
the purpose of the Legislature is plainly to erect a wall of safety against
temptation for a director of the bank. The prohibition against indirect loans is
a recognition of the familiar maxim that no man may serve two masters
that where personal interest clashes with fidelity to duty the latter almost
always suffers. If, therefore, it is shown that the husband is financially
interested in the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within the
prohibition.
Various provisions of the Civil serve to establish the familiar relationship
called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and
1412 can be specially noted.) A loan, therefore, to a partnership of which the
wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such
occurrence is shown by the acknowledged fact that in this instance
defendant was tempted to mingle his personal and family affairs with
official duties, and to permit the loan P300,000 to a partnership of
established reputation and without asking for collateral security.

an
the
his
no

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am.
Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no director or
officer should borrow of the bank, and "if any director," etc., "shall be
convicted," etc., "of directly or indirectly violating this section he shall be
punished by fine and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation to which the
directors and officers might be exposed, and the power which as such they

must necessarily possess in the control and management of the bank, and
the legislature unwilling to rely upon the implied understanding that in
assuming this relation they would not acquire any interest hostile or adverse
to the most exact and faithful discharge of duty, declared in express terms
that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the
Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership firm as
well as to himself directly. The loan was made indirectly to him through his
firm.
IV.
Could Venancio Concepcion, President of the Philippine National
Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with
section 49 of the same Act, when these portions of Act No. 2747 were
repealed by Act No. 2938, prior to the finding of the information and the
rendition of the judgment?

VI.
Does the alleged good faith of Venancio Concepcion, President of
the Philippine National Bank, in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was
convicted, it was because he was misled by rulings coming from the Insular
Auditor. It is furthermore stated that since the loans made to the
copartnership "Puno y Concepcion, S. en C." have been paid, no loss has
been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the
statute which the defendant has violated, criminal intent is not necessarily
material. The doing of the inhibited act, inhibited on account of public policy
and public interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do
not fall within the purview of the rulings of the Insular Auditor, even conceding
that such rulings have controlling effect.

As noted along toward the beginning of this opinion, section 49 of Act No.
2747, in relation to section 35 of the same Act, provides a punishment for any
person who shall violate any of the provisions of the Act. It is contended,
however, by the appellant, that the repeal of these sections of Act No. 2747
by Act No. 2938 has served to take away the basis for criminal prosecution.

Morse, in his work, Banks and Banking, section 125, says:

This same question has been previously submitted and has received an
answer adverse to such contention in the cases of United Stated vs. Cuna
([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and
Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272;
40 Phil., 1046). In other words, it has been the holding, and it must again be
the holding, that where an Act of the Legislature which penalizes an offense,
such repeals a former Act which penalized the same offense, such repeal
does not have the effect of thereafter depriving the courts of jurisdiction to try,
convict, and sentenced offenders charged with violations of the old law.

On a review of the evidence of record, with reference to the decision of the

trial court, and the errors assigned by the appellant, and with reference to
previous decisions of this court on the same subject, we are irresistibly led to
the conclusion that no reversible error was committed in the trial of this case,
and that the defendant has been proved guilty beyond a reasonable doubt of
the crime charged in the information. The penalty imposed by the trial judge
falls within the limits of the punitive provisions of the law.

V.
Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, in violation of section 35 of Act No. 2747, penalized by this
law?
Counsel argue that since the prohibition contained in section 35 of Act No.
2747 is on the bank, and since section 49 of said Act provides a punishment
not on the bank when it violates any provisions of the law, but on a person
violating any provisions of the same, and imposing imprisonment as a part of
the penalty, the prohibition contained in said section 35 is without penal
sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the
prohibition extends to the board of directors, and to each director separately
and individually. (People vs. Concepcion, supra.)

It is fraud for directors to secure by means of their trust, and advantage not
common to the other stockholders. The law will not allow private profit from a
trust, and will not listen to any proof of honest intent.
JUDGMENT

Judgment is affirmed, with the costs of this instance against the appellant. So
ordered.
Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and
Romualdez, JJ., concur.

HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,

INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs
broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable
rate of interest, referred to above, is twelve percent (12%) or six percent
(6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of
such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made

deliveries of the shipment to the consignee's warehouse. The latter excepted
to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum,
the consignee suffered losses totaling P19,032.95, due to the fault and

negligence of defendants. Claims were presented against defendants who

failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that
it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts.
Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations
of the complaint contending that: As for defendant Eastern Shipping it alleged
that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the
shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already
in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no
cause of action against it, not having negligent or at fault for the shipment
was already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment
was received by it.

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:

From the evidence the court found the following:

A.

The issues are:

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);

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 preTrial Brief, adopting plaintiff's Records, p. 38).

Ordering defendants to pay plaintiff, jointly and severally:

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.

2.

P3,000.00 as attorney's fees, and

3.

Costs.

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.

Dissatisfied, defendant's recourse to US.

B.
Dismissing the counterclaims and crossclaim of defendant/crossclaimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and

therefore they are liable to the appellee, as subrogee for the amount it paid to
the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when
I.
IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER
FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
QUESTIONED DECISION;
II.
IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT
PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE
TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by
petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment
of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation
until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52
Phil. 863). When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold
it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of
Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA
365). There are, of course, exceptional cases when such presumption of fault
is not observed but these cases, enumerated in Article 1734 1 of the Civil
Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to 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, 14 decided on 08 May 1992, involved the
expropriation of certain parcels of land. After conducting a hearing on the
complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their
lands so expropriated "with legal interest thereon . . . until fully paid." Again,
in applying the 6% legal interest per annum under the Civil Code, the 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, 17 depending on whether or not the
amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group"
which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the
"second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the
date of the decision of the court a quo, explaining that "if the suit were for
damages, 'unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof,' then, interest 'should be from the
date of the decision.'" American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be

"computed from the finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be imposed from the finality
of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances
may have called for different applications, guided by the rule that the courts
are vested with discretion, depending on the equities of each case, on the
award of interest. Nonetheless, it may not be unwise, by way of clarification
and reconciliation, to suggest the following rules of thumb for future
guidance.
I.
When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts 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

ARRASTRE and the CARRIER are therefore charged with the obligation to
deliver the goods in good condition to the consignee.

Mendoza, J., took no part.

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.

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF

APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents.

(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

03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest,

in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality
of this decision until the payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.

VITUG, J.:
FACTS:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of
such losses/damages.
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).
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.
DECISION OF LOWER COURTS: * trial court: ordered payment of damages,
jointly and severally * CA: affirmed trial court.

FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE

SUPREME COURT)
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.
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:

(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;

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.

YES, it is solidary. 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

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

ISSUES AND RULING:

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.
(c) whether the applicable rate of interest, referred to above, is twelve
percent (12%) or six percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo (Court of Appeals) AND A TWELVE
PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed
on such amount upon finality of the Supreme Court decision until the
payment thereof.
RATIO: when the judgment awarding a sum of money becomes final and
executory, the monetary award shall earn interest at 12% per annum from
the date of such finality until its satisfaction, regardless of whether the case
involves a loan or forbearance of money. The reason is that this interim
period is deemed to be by then equivalent to a forbearance of credit.
NOTES: the Central Bank Circular imposing the 12% interest per annum
applies only to loans or forbearance 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.

Dario Nacar vs Gallery Frames

703 SCRA 439 Civil Law Torts and Damages Actual and Compensatory
Damages Legal Rate of Interest is now 6%
Labor Law Labor Relations Illegal Dismissal Computation of Monetary
Benefits
FACTS: Dario Nacar filed a labor case against Gallery Frames and its owner
Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause by
Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter
(LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter
awarded Nacar P158,919.92 in damages consisting of backwages and
separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The
Supreme Court affirmed the decision of the Labor Arbiter and the decision
became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from
the time of his illegal dismissal (January 24, 1997) until the finality of the SC
decision (May 27, 2002) with interest. The LA denied the motion as he ruled
that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA
(October 15, 1998). The LA reasoned that the said date should be the
reckoning point because Nacar did not appeal hence as to him, that decision
became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal
dismissal cases (referring to cases where the dismissed employee wins, or
loses but wins on appeal). The first part is the ruling that the employee was
illegally dismissed. This is immediately final even if the employer appeals
but will be reversed if employer wins on appeal. The second part is the ruling
on the award of backwages and/or separation pay. For backwages, it will be
computed from the date of illegal dismissal until the date of the decision of
the Labor Arbiter. But if the employer appeals, then the end date shall be
extended until the day when the appellate courts decision shall become final.
Hence, as a consequence, the liability of the employer, if he loses on appeal,
will increase this is just but a risk that the employer cannot avoid when it
continued to seek recourses against the Labor Arbiters decision. This is also
in accordance with Article 279 of the Labor Code.

Anent the issue of award of interest in the form of actual or compensatory

damages, the Supreme Court ruled that the old case of Eastern Shipping
Lines vs CA is already modified by the promulgation of the Bangko Sentral
ng Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate
of interest from 12% to 6%. Specifically, the rules on interest are now as
follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing

a. If already liquidated, rate of interest shall be 6% per annum, demandable

from date of judicial or extra-judicial
demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per
annum demandable from the date of judgment because such on such date, it
is already deemed that the amount of damages is already ascertained.
3. Compounded Interest
This is applicable to both monetary and non-monetary obligations
6% per annum computed against award of damages (interest) granted by
the court. To be computed from the date when the courts decision becomes
final and executory until the award is fully satisfied by the losing party.

b.1. shall run from date of default (either failure to pay upon extra-judicial
demand or upon judicial demand whichever is appropriate and subject to the
provisions of Article 1169 of the Civil Code)

4. The 6% per annum rate of legal interest shall be applied prospectively:

b.2. rate of interest shall be 6% per annum

Final and executory judgments awarding damages on or after July 1, 2013

shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid
obligations with respect to said judgments on or after July 1, 2013 shall still
incur the 6% rate.

2.

Non-Monetary Obligations (such as the case at bar)

Final and executory judgments awarding damages prior to July 1, 2013

shall apply the 12% rate;