NACAR V.

GALLERY FRAMES AND/OR BORDEY, (2013)

(Compensatory, Penalty or Indemnity Interest)
*Amending the Eastern Shipping Doctrine
*Important: because this case discusses the amendment of the legal interest in loan and forbearance of
money, credits or goods from 12% to 6% effective July 1, 2013.

Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796, approved the
amendment of Section 2 of 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:
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.
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 12% per annum but will now be 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 12% per annum legal interest shall apply only until June
30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the prevailing rate of
interest when applicable.
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 quasidelicts 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:
New guidelines in the award of interest:
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 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2.) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at 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 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.
Application in this case: The interest of 12% per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013 until their full
satisfaction, is awarded.
CASE DIGEST
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: If stipulated in writing:
shall run from date of judicial demand (filing of the case)
rate of interest shall be that amount stipulated
If not stipulated in writing
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)
rate of interest shall be 6% per annum

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

If already liquidated, rate of interest shall be 6% per annum, demandable from date of
judicial or extra-judicial demand (Art. 1169, Civil Code)
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.

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

Final and executory judgments awarding damages prior to July 1, 2013 shall
apply the 12% rate;
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.