Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas
Bank of Manila.
Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand
Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank
of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to
return the time deposits made by petitioner and assigned to him, on the ground that
respondent Central Bank failed in its duty to exercise strict supervision over respondent
Overseas Bank of Manila to protect depositors and the general public.1 Petitioner also prays
that both respondent banks be ordered to execute the proper and necessary documents to
constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of
the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of
the Philippines," into a trust fund in favor of petitioner and all other depositors of
respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon the validity or
efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever
nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in
G.R. No. 29352.2
A sought for ex-parte preliminary injunction against both respondent banks was not given by
this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year
with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent
Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-
½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same
respondent Overseas Bank of Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and
conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent
Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from
the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968,
not a single one of the time deposit certificates was honored by respondent Overseas Bank
of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking
system of the Republic and it exercises supervision over all doing business in the
Philippines, but denies the petitioner's allegation that the Central Bank has the duty to
exercise a most rigid and stringent supervision of banks, implying that respondent Central
Bank has to watch every move or activity of all banks, including respondent Overseas Bank
of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of
Manila, while operating, was only on a limited degree of banking operations since the
Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the
Overseas Bank of Manila from making new loans and investments in view of its chronic reserve
deficiencies against its deposit liabilities. This limited operation of respondent Overseas
Bank of Manila continued up to 1968.7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any
banking institution as claimed by petitioner. It claims that neither the law nor sound
banking supervision requires respondent Central Bank to advertise or represent to the public
any remedial measures it may impose upon chronic delinquent banks as such action may
inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings
to declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of
petitioner and his predecessor in interest Concepcion Maneja when their time deposits were
made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the
latter was not an insolvent bank and its operation as a banking institution was being
salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given
by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank
of the Philippines for the former's overdrafts and emergency loans were acquired through
the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of
Manila sought to prevent respondent Central Bank from closing, declaring the former
insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on
September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano
had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in
litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner
Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor
of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance,
and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352,
thousands of other depositors would follow and thus cause an avalanche of cases in this
Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to
intervene. The contents of said motion to intervene are substantially the same as those of
the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and
executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the
dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central
Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operation, and ordering the
liquidation of said bank) are hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its obligations under the Voting Trust
Agreement, and to desist from taking action in violation therefor. Costs against respondent
Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this
case, praying for a decision on the merits, adjudging respondent Central Bank jointly and
severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000
time deposit made with the latter bank, with all interests due therein; and declaring all
assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups
in favor of the Central Bank as trust funds for the benefit of petitioner and other
depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality
are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and
recovery of damages against respondent Central Bank for its alleged failure to strictly
supervise the acts of the other respondent Bank and protect the interests of its depositors
by virtue of the constructive trust created when respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts said emergency loans, said
collaterals allegedly acquired through the use of depositors money. These claims shoud be
ventilated in the Court of First Instance of proper jurisdiction as We already pointed out
when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these
nature are not proper in actions for mandamus and prohibition as there is no shown clear
abuse of discretion by the Central Bank in its exercise of supervision over the other
respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper
party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No.
L-29352. Neither is there anything to prohibit in this case, since the questioned acts of
the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages against
respondent Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank
deposits when the petitioner claimed that there should be created a constructive trust in
his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of
respondent Central Bank for the former's overdrafts and emergency loans, since these
collaterals were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans. 14 Current and savings deposit
are loans to a bank because it can use the same. The petitioner here in making time deposits
that earn interests with respondent Overseas Bank of Manila was in reality a creditor of
the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s
obligation as a debtor and not a breach of trust arising from depositary's failure to return
the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice
Aquino.

Separate Opinions

AQUINO, J., concurring:

The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000,
plus interests, which he could not recover from the distressed Overseas Bank of Manila, and
to declare all the assets assigned or mortgaged by that bank and the Ramos group to the
Central Bank as trust properties for the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those reliefs.
They cannot be granted in petitioner's instant original actions in this Court for mandamus
and prohibition. It is not the Central Bank's ministerial duty to pay petitioner's time
deposits or to hold the mortgaged properties in trust for the depositors of the Overseas
Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually
available against any tribunal, board, corporation or person exercising judicial or
ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks
was ordered to take over its assets preparatory to its liquidation under section 29 of
Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's
remedy is to file his claim in the liquidating proceeding (Central Bank vs. Morfe, L-38427,
March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10,
1978, 81 SCRA 75).

Footnotes
1 pp. 1-10, rollo. 9 pp- 22-24, Id.
2 p. 10, Id. 10 pp. 24-25, Id.
3 pp. 12-13, Id. 11 pp. 26-27, Id.
4 pp. 12-13, Id. 12 p. 193, Id.
5 p. 14, Id. 13 pp. 183-187, Id.
6 p. 15, Id. 14 Art. 1980, Civil Code, Gullas vs. Phil.
7 pp- 18-19, Id. National Bank, 62 Phil. 519
8 pp, 19-20, Id.

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Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-
appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.

MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the
beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest
made for the construction of a leper hospital and that father Agustin de la Peña was the
duly authorized representative of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as
such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In
the same year he deposited in his personal account P19,000 in the Hongkong and Shanghai
Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la Peña
was arrested by the military authorities as a political prisoner, and while thus detained
made an order on said bank in favor of the United States Army officer under whose charge he
then was for the sum thus deposited in said bank. The arrest of Father De la Peña and the
confiscation of the funds in the bank were the result of the claim of the military
authorities that he was an insurgent and that the funds thus deposited had been collected
by him for revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of
trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful
examination of the case leads us to the conclusion that said trust funds were a part of the
funds deposited and which were removed and confiscated by the military authorities of the
United States.
That branch of the law known in England and America as the law of trusts had no exact
counterpart in the Roman law and has none under the Spanish law. In this jurisdiction,
therefore, Father De la Peña's liability is determined by those portions of the Civil Code
which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art. 1094), it
also provides, following the principle of the Roman law, major casus est, cui humana
infirmitas resistere non potest, that "no one shall be liable for events which could not be
foreseen, or which having been foreseen were inevitable, with the exception of the cases
expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Peña did not
thereby assume an obligation different from that under which he would have lain if such
deposit had not been made, nor did he thereby make himself liable to repay the money at all
hazards. If the had been forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, it is clear that under the provisions
of the Civil Code he would have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or
less negligently by depositing the money in the bank than he would if he had left it in his
home; or whether he was more or less negligent by depositing the money in his personal
account than he would have been if he had deposited it in a separate account as trustee. We
regard such discussion as substantially fruitless, inasmuch as the precise question is not
one of negligence. There was no law prohibiting him from depositing it as he did and there
was no law which changed his responsibility be reason of the deposit. While it may be true
that one who is under obligation to do or give a thing is in duty bound, when he sees events
approaching the results of which will be dangerous to his trust, to take all reasonable
means and measures to escape or, if unavoidable, to temper the effects of those events, we
do not feel constrained to hold that, in choosing between two means equally legal, he is
culpably negligent in selecting one whereas he would not have been if he had selected the
other.
The court, therefore, finds and declares that the money which is the subject matter of this
action was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation
of Iloilo; that said money was forcibly taken from the bank by the armed forces of the
United States during the war of the insurrection; and that said Father De la Peña was not
responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing
by his complaint.
Arellano, C.J., Torres and Carson, JJ., concur.

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the
plaintiff his books showed that in 1898 he had in his possession as trustee or agent the
sum of P6,641 belonging to the plaintiff as the head of the church. This money was then
clothed with all the immunities and protection with which the law seeks to invest trust
funds. But when De la Peña mixed this trust fund with his own and deposited the whole in
the bank to hispersonal account or credit, he by this act stamped on the said fund his own
private marks and unclothed it of all the protection it had. If this money had been deposited
in the name of De la Peña as trustee or agent of the plaintiff, I think that it may be
presumed that the military authorities would not have confiscated it for the reason that
they were looking for insurgent funds only. Again, the plaintiff had no reason to suppose
that De la Peña would attempt to strip the fund of its identity, nor had he said or done
anything which tended to relieve De la Peña from the legal reponsibility which pertains to
the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at
page 343, said: "Trustees are only bound to exercise the same care and solicitude with
regard to the trust property which they would exercise with regard to their own. Equity
will not exact more of them. They are not liable for a loss by theft without their fault.
But this exemption ceases when they mix the trust-money with their own, whereby it loses
its identity, and they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and
I entertain no doubt on this point, the liability of the estate of De la Peña cannot be
doubted. But this court in the majority opinion says: "The fact that he (Agustin de la Peña)
placed the trust fund in the bank in his personal account does not add to his responsibility.
Such deposit did not make him a debtor who must respond at all hazards. . . . There was no
law prohibiting him from depositing it as he did, and there was no law which changed his
responsibility, by reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above
quotation meant to say that there was no statutory law regulating the question. Questions
of this character are not usually governed by statutory law. The law is to be found in the
very nature of the trust itself, and, as a general rule, the courts say what facts are
necessary to hold the trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal account, had used this money
for speculative purposes, such as the buying and selling of sugar or other products of the
country, thereby becoming a debtor, there would have been no doubt as to the liability of
his estate. Whether he used this money for that purpose the record is silent, but it will
be noted that a considerable length of time intervened from the time of the deposit until
the funds were confiscated by the military authorities. In fact the record shows that De la
Peña deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of
the same year P6,000. The record also shows that these funds were withdrawn and again
deposited all together on the 29th of May, 1900, this last deposit amounting to P18,970.
These facts strongly indicate that De la Peña had as a matter of fact been using the money
in violation of the trust imposed in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter arising in
this jurisdiction trust funds will be placed in precarious condition. The position of the
trustee will cease to be one of trust.

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Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 4015 August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,
vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.
B. Montinola for appellee.

TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October,
1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim and
Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of P2,686.58, with
interest thereon at the rate of 15 per cent per annum from the 20th of January, 1898, until
full payment should be made, deducting from the amount of interest due the sum of P1,102.16,
and to pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was amended on the
10th of January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed
and subscribed a document in favor of the plaintiff reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum of two thousand
six hundred and eighty-six cents of pesos fuertes, which we will return to the said
gentleman, jointly and severally, on the 20th of January, 1898. — Jaro, 26th of May, 1897.
— Signed Jose Lim. — Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for an extension
of time for the payment thereof, building themselves to pay interest at the rate of 15 per
cent on the amount of their indebtedness, to which the plaintiff acceded; that on the 15th
of May, 1902, the debtors paid on account of interest due the sum of P1,000 pesos, with the
exception of either capital or interest, had thereby been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the
defendants answered the original complaint before its amendment, setting forth that they
acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they admitted the
statements of the plaintiff relative to the payment of 1,102.16 pesos made on the 15th of
November, 1902, not, however, as payment of interest on the amount stated in the foregoing
document, but on account of the principal, and denied that there had been any agreement as
to an extension of the time for payment and the payment of interest at the rate of 15 per
cent per annum as alleged in paragraph 3 of the complaint, and also denied all the other
statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which,
together with the P1,102.16 acknowledged in the complaint, aggregated the total sum of
P5,602.16, and that, deducting therefrom the total sum of P2,686.58 stated in the document
transcribed in the complaint, the plaintiff still owed the defendants P2,915.58; therefore,
they asked that judgment be entered absolving them, and sentencing the plaintiff to pay
them the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an account
book having been made of record, the court below rendered judgment on the 15th of January,
1907, in favor of the plaintiff for the recovery of the sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This motion was
overruled and was also excepted to by them; the bill of exceptions presented by the
appellants having been approved, the same was in due course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left on
deposit with the defendants a given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document; but that, nevertheless, when the
document appearing as Exhibits 2, written in the Visayan dialect and followed by a
translation into Spanish was executed, it was acknowledged, at the date thereof, the 15th
of November, 1902, that the amount deposited had not yet been returned to the creditor,
whereby he was subjected to losses and damages amounting to 830 pesos since the 20th of
January, 1898, when the return was again stipulated with the further agreement that the
amount deposited should bear interest at the rate of 15 per cent per annum, from the
aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of
May, 1900, according to the receipt issued by him to the debtors, would be included, and
that the said rate of interest would obtain until the debtors on the 20th of May, 1897, it
is called a deposit consisted, and they could have accomplished the return agreed upon by
the delivery of a sum equal to the one received by them. For this reason it must be
understood that the debtors were lawfully authorized to make use of the amount deposited,
which they have done, as subsequent shown when asking for an extension of the time for the
return thereof, inasmuch as, acknowledging that they have subjected the letter, their
creditor, to losses and damages for not complying with what had been stipulated, and being
conscious that they had used, for their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to the creditor from the date named
until the time when the refund should be made. Such conduct on the part of the debtors is
unquestionable evidence that the transaction entered into between the interested parties
was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express permission of
the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited, the contract loses
the character of a deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor
asking for an extension of one year, in view of the fact the money was scare, and because
neither himself nor the other defendant were able to return the amount deposited, for which
reason he agreed to pay interest at the rate of 15 per cent per annum, it was because, as
a matter of fact, he did not have in his possession the amount deposited, he having made
use of the same in his business and for his own profit; and the creditor, by granting them
the extension, evidently confirmed the express permission previously given to use and
dispose of the amount stated as having bee deposited, which, in accordance with the loan,
to all intents and purposes gratuitously, until the 20th of January, 1898, and from that
dated with interest at 15 per cent per annum until its full payment, deducting from the
total amount of interest the sum of 1,000 pesos, in accordance with the provisions of
article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2)
executed in the presence of three witnesses on the 15th of November, 1902, by Ceferino
Domingo Lim on behalf of himself and the former, nevertheless, the said document has not
been contested as false, either by a criminal or by a civil proceeding, nor has any doubt
been cast upon the authenticity of the signatures of the witnesses who attested the execution
of the same; and from the evidence in the case one is sufficiently convinced that the said
Jose Lim was perfectly aware of and authorized his joint codebtor to liquidate the interest,
to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid document
No. 2. A true ratification of the original document of deposit was thus made, and not the
least proof is shown in the record that Jose Lim had ever paid the whole or any part of the
capital stated in the original document, Exhibit 1.
If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as
fully established, such is not the case with the defendant's counterclaim for P5,602.16,
because the existence and certainty of said indebtedness imputed to the plaintiff has not
been proven, and the defendants, who call themselves creditors for the said amount have not
proven in a satisfactory manner that the plaintiff had received partial payments on account
of the same; the latter alleges with good reason, that they should produce the receipts
which he may have issued, and which he did issue whenever they paid him any money on account.
The plaintiffs allegation that the two amounts of 400 and 1,200 pesos, referred to in
documents marked "C" and "D" offered in evidence by the defendants, had been received from
Ceferino Domingo Lim on account of other debts of his, has not been contradicted, and the
fact that in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of
1,000 pesos, the only payment made on account of interest on the amount deposited according
to documents No. 2 and letter "B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter of course, be inferred that
there was no renewal of the contract deposited converted into a loan, because, as has
already been stated, the defendants received said amount by virtue of real loan contract
under the name of a deposit, since the so-called bailees were forthwith authorized to
dispose of the amount deposited. This they have done, as has been clearly shown.
The original joint obligation contracted by the defendant debtor still exists, and it has
not been shown or proven in the proceedings that the creditor had released Joe Lim from
complying with his obligation in order that he should not be sued for or sentenced to pay
the amount of capital and interest together with his codebtor, Ceferino Domingo Lim, because
the record offers satisfactory evidence against the pretension of Jose Lim, and it further
appears that document No. 2 was executed by the other debtor, Ceferino Domingo Lim, for
himself and on behalf of Jose Lim; and it has also been proven that Jose Lim, being fully
aware that his debt had not yet been settled, took steps to secure an extension of the time
for payment, and consented to pay interest in return for the concession requested from the
creditor.
In view of the foregoing, and adopting the findings in the judgment appealed from, it is
our opinion that the same should be and is hereby affirmed with the costs of this instance
against the appellant, provided that the interest agreed upon shall be paid until the
complete liquidation of the debt. So ordered.
Arellano, C.J., Carson, Willard and Tracey, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. Nos. L-26948 and L-26949 October 8, 1927

SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No. 26948.
Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No.
26949.

STREET, J.:
These two actions were instituted in the Court of First Instance of the Province of Pampanga
by the respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of
recovering from the defendant, Pablo David, the value of palay alleged to have been sold by
the plaintiffs to the defendant in the year 1920. Owing to the fact that the defendant is
the same in both cases and that the two cases depend in part upon the same facts, the cases
were heard together in the trial court and determined in a single opinion. The same course
will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment
for her to recover of the defendant the sum of P5,238.51, with costs. From this judgment
both the plaintiff and the defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave
judgment for him to recover of the defendant the sum of P5,734.60, with costs, from which
judgment both the plaintiff and the defendant also appealed. In the same case the defendant
interposed a counterclaim in which he asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on various occasions. This credit was admitted by
the plaintiff and allowed by the trial court. But the defendant also interposed a cross-
action against Guillermo Baron in which the defendant claimed compensation for damages
alleged to have Ben suffered by him by reason of the alleged malicious and false statements
made by the plaintiff against the defendant in suing out an attachment against the
defendant's property soon after the institution of the action. In the same cross-action the
defendant also sought compensation for damages incident to the shutting down of the
defendant's rice mill for the period of one hundred seventy days during which the above-
mentioned attachment was in force. The trial judge disallowed these claims for damages, and
from this feature of the decision the defendant appealed. We are therefore confronted with
five distinct appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice
mill in the municipality of Magalang, in the Province of Pampanga, a mill which was well
patronized by the rice growers of the vicinity and almost constantly running. On the date
stated a fire occurred that destroyed the mill and its contents, and it was some time before
the mill could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the
first of the actions before us, is an aunt of the defendant; while Guillermo Baron, the
plaintiff in the other action; is his uncle. In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection
with some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24 kilos.
During approximately the same period Guillermo Baron placed other 1,865 cavans and 43 kilos
of palay in the mill. No compensation has ever been received by Silvestra Baron upon account
of the palay delivered by Guillermo Baron, he has received from the defendant advancements
amounting to P2,800; but apart from this he has not been compensated. Both the plaintiffs
claim that the palay which was delivered by them to the defendant was sold to the defendant;
while the defendant, on the other hand, claims that the palay was deposited subject to
future withdrawal by the depositors or subject to some future sale which was never effected.
He therefore supposes himself to be relieved from all responsibility by virtue of the fire
of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his special
request, coupled with a promise on his part to pay for the same at the highest price per
cavan at which palay would sell during the year 1920; and they say that in August of that
year the defendant promised to pay them severally the price of P8.40 per cavan, which was
about the top of the market for the season, provided they would wait for payment until
December. The trial judge found that no such promise had been given; and the incredulity of
the court upon this point seems to us to be justified. A careful examination of the proof,
however, leads us to the conclusion that the plaintiffs did, some time in the early part of
August, 1920, make demand upon the defendant for a settlement, which he evaded or postponed
leaving the exact amount due to the plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in the defendant's
mill with the understanding that the defendant was at liberty to convert it into rice and
dispose of it at his pleasure. The mill was actively running during the entire season, and
as palay was daily coming in from many customers and as rice was being constantly shipped
by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs'
palay segregated. In fact the defendant admits that the plaintiffs' palay was mixed with
that of others. In view of the nature of the defendant's activities and the way in which
the palay was handled in the defendant's mill, it is quite certain that all of the
plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long
prior to the fire of January 17, 1921. Furthermore, the proof shows that when the fire
occurred there could not have been more than about 360 cavans of palay in the mill, none of
which by any reasonable probability could have been any part of the palay delivered by the
plaintiffs. Considering the fact that the defendant had thus milled and doubtless sold the
plaintiffs' palay prior to the date of the fire, it result that he is bound to account for
its value, and his liability was not extinguished by the occurence of the fire. In the
briefs before us it seems to have been assumed by the opposing attorneys that in order for
the plaintiffs to recover, it is necessary that they should be able to establish that the
plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary,
the defendant should prove that the delivery was made in the character of deposit, the
defendant should be absolved. But the case does not depend precisely upon this explicit
alternative; for even supposing that the palay may have been delivered in the character of
deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it
was understood that the defendant might mill the palay and he has in fact appropriated it
to his own use, he is of course bound to account for its value. Under article 1768 of the
Civil Code, when the depository has permission to make use of the thing deposited, the
contract loses the character of mere deposit and becomes a loan or a commodatum; and of
course by appropriating the thing, the bailee becomes responsible for its value. In this
connection we wholly reject the defendant's pretense that the palay delivered by the
plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the
liability of the defendant in any wise affected by the circumstance that, by a custom
prevailing among rice millers in this country, persons placing palay with them without
special agreement as to price are at liberty to withdraw it later, proper allowance being
made for storage and shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to discover the price which the defendant
should be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed
upon P6.15 per cavan; and although we are not exactly in agreement with him as to the
propriety of the method by which he arrived at this figure, we are nevertheless of the
opinion that, all things considered, the result is approximately correct. It appears that
the price of palay during the months of April, May, and June, 1920, had been excessively
high in the Philippine Islands and even prior to that period the Government of the Philippine
Islands had been attempting to hold the price in check by executive regulation. The highest
point was touched in this season was apparently about P8.50 per cavan, but the market began
to sag in May or June and presently entered upon a precipitate decline. As we have already
stated, the plaintiffs made demand upon the defendant for settlement in the early part of
August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan,
fixed by the trial court, is about the price at which the defendant should be required to
settle as of that date. It was the date of the demand of the plaintiffs for settlement that
determined the price to be paid by the defendant, and this is true whether the palay was
delivered in the character of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs are respectively entitle to
recover the value of the palay which they had placed with the defendant during the period
referred to, with interest from the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were about 360
cavans of palay in the mill and that this palay was destroyed. His Honor assumed that this
was part of the palay delivered by the plaintiffs, and he held that the defendant should be
credited with said amount. His Honor therefore deducted from the claims of the plaintiffs
their respective proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the defendant's
rice mill who had placed their palay with the defendant under the same conditions as the
plaintiffs, and nothing can be more certain than that the palay which was burned did not
belong to the plaintiffs. That palay without a doubt had long been sold and marketed. The
assignments of error of each of the plaintiffs-appellants in which this feature of the
decision is attacked are therefore well taken; and the appealed judgments must be modified
by eliminating the deductions which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of
167 cavans of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous.
These exhibits relate to transactions that occurred nearly two years after the transactions
with which we are here concerned, and they were offered in evidence merely to show the
character of subsequent transactions between the parties, it appearing that at the time
said exhibits came into existence the defendant had reconstructed his mill and that business
relations with Guillermo Baron had been resumed. The transactions shown by these exhibits
(which relate to palay withdrawn by the plaintiff from the defendant's mill) were not made
the subject of controversy in either the complaint or the cross-complaint of the defendant
in the second case. They therefore should not have been taken into account as a credit in
favor of the defendant. Said credit must therefore be likewise of course be without prejudice
to any proper adjustment of the rights of the parties with respect to these subsequent
transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the liability of the
defendant upon the causes of action stated in the complaints. We proceed therefore now to
consider the question of the liability of the plaintiff Guillermo Baron upon the cross-
complaint of Pablo David in case R. G. No. 26949. In this cross-action the defendant seek,
as the stated in the third paragraph of this opinion, to recover damages for the wrongful
suing out of an attachment by the plaintiff and the levy of the same upon the defendant's
rice mill. It appears that about two and one-half months after said action was begun, the
plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of
the defendant; and to procure the issuance of said writ the plaintiff made affidavit to the
effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit
an attachment was issued as prayed, and on March 27, 1924, it was levied upon the defendant's
rice mill, and other property, real and personal.
Upon attaching the property the sheriff closed the mill and placed it in the care of a
deputy. Operations were not resumed until September 13, 1924, when the attachment was
dissolved by an order of the court and the defendant was permitted to resume control. At
the time the attachment was levied there were, in the bodega, more than 20,000 cavans of
palay belonging to persons who held receipts therefor; and in order to get this grain away
from the sheriff, twenty-four of the depositors found it necessary to submit third-party
claims to the sheriff. When these claims were put in the sheriff notified the plaintiff
that a bond in the amount of P50,000 must be given, otherwise the grain would be released.
The plaintiff, being unable or unwilling to give this bond, the sheriff surrendered the
palay to the claimants; but the attachment on the rice mill was maintained until September
13, as above stated, covering a period of one hundred seventy days during which the mill
was idle. The ground upon which the attachment was based, as set forth in the plaintiff's
affidavit was that the defendant was disposing or attempting to dispose of his property for
the purpose of defrauding the plaintiff. That this allegation was false is clearly apparent,
and not a word of proof has been submitted in support of the assertion. On the contrary,
the defendant testified that at the time this attachment was secured he was solvent and
could have paid his indebtedness to the plaintiff if judgment had been rendered against him
in ordinary course. His financial conditions was of course well known to the plaintiff, who
is his uncle. The defendant also states that he had not conveyed away any of his property,
nor had intended to do so, for the purpose of defrauding the plaintiff. We have before us
therefore a case of a baseless attachment, recklessly sued out upon a false affidavit and
levied upon the defendant's property to his great and needless damage. That the act of the
plaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in the
circumstance that the attachment was finally dissolved upon the motion of the plaintiff
himself.
The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of
palay per day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning
each cavan rice was 30 centavos. The defendant also stated that the expense of running the
mill per day was from P18 to P25, and that the net profit per day on the mill was more than
P40. As the mill was not accustomed to run on Sundays and holiday, we estimate that the
defendant lost the profit that would have been earned on not less than one hundred forty
work days. Figuring his profits at P40 per day, which would appear to be a conservative
estimate, the actual net loss resulting from his failure to operate the mill during the
time stated could not have been less than P5,600. The reasonableness of these figures is
also indicated in the fact that the twenty-four customers who intervened with third-party
claims took out of the camarin 20,000 cavans of palay, practically all of which, in the
ordinary course of events, would have been milled in this plant by the defendant. And of
course other grain would have found its way to this mill if it had remained open during the
one hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again opened, the
defendant found that his customers had become scattered and could not be easily gotten back.
So slow, indeed, was his patronage in returning that during the remainder of the year 1924
the defendant was able to mill scarcely more than the grain belonging to himself and his
brothers; and even after the next season opened many of his old customers did not return.
Several of these individuals, testifying as witnesses in this case, stated that, owing to
the unpleasant experience which they had in getting back their grain from the sheriff to
the mill of the defendant, though they had previously had much confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff submitted no
evidence whatever. We are therefore constrained to hold that the defendant was damaged by
the attachment to the extent of P5,600, in profits lost by the closure of the mill, and to
the extent of P1,400 for injury to the good-will of his business, making a total of P7,000.
For this amount the defendant must recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages resulting from
the wrongful suing out of the attachment, suggested that the closure of the rice mill was
a mere act of the sheriff for which the plaintiff was not responsible and that the defendant
might have been permitted by the sheriff to continue running the mill if he had applied to
the sheriff for permission to operate it. This singular suggestion will not bear a moment's
criticism. It was of course the duty of the sheriff, in levying the attachment, to take the
attached property into his possession, and the closure of the mill was a natural, and even
necessary, consequence of the attachment. For the damage thus inflicted upon the defendant
the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant (cross-complaint)
for the sum of P20,000 as damages caused to the defendant by the false and alleged malicious
statements contained in the affidavit upon which the attachment was procured. The additional
sum of P5,000 is also claimed as exemplary damages. It is clear that with respect to these
damages the cross-action cannot be maintained, for the reason that the affidavit in question
was used in course of a legal proceeding for the purpose of obtaining a legal remedy, and
it is therefore privileged. But though the affidavit is not actionable as a libelous
publication, this fact in no obstacle to the maintenance of an action to recover the damage
resulting from the levy of the attachment.
Before closing this opinion a word should be said upon the point raised in the first
assignment of error of Pablo David as defendant in case R. G. No. 26949. In this connection
it appears that the deposition of Guillermo Baron was presented in court as evidence and
was admitted as an exhibit, without being actually read to the court. It is supposed in the
assignment of error now under consideration that the deposition is not available as evidence
to the plaintiff because it was not actually read out in court. This connection is not well
founded. It is true that in section 364 of the Code of Civil Procedure it is said that a
deposition, once taken, may be read by either party and will then be deemed the evidence of
the party reading it. The use of the word "read" in this section finds its explanation of
course in the American practice of trying cases for the most part before juries. When a
case is thus tried the actual reading of the deposition is necessary in order that the
jurymen may become acquainted with its contents. But in courts of equity, and in all courts
where judges have the evidence before them for perusal at their pleasure, it is not necessary
that the deposition should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must be modified with
respect to the amounts recoverable by the respective plaintiffs in the two actions R. G.
Nos. 26948 and 26949 and must be reversed in respect to the disposition of the cross-
complaint interposed by the defendant in case R. G. No. 26949, with the following result:
In case R. G. No. 26948 the plaintiff Silvestra Baron will recover of the Pablo David the
sum of P6,227.24, with interest from November 21, 1923, the date of the filing of her
complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will
recover of the defendant Pablo David the sum of P8,669.75, with interest from January 9,
1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, will
recover of Guillermo Baron the sum of P7,000, without costs. So ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.

Separate Opinions

JOHNS, J., dissenting and concurring:

The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron, the
plaintiff in the other action, is his uncle. There is no dispute as to the amount of palay
which each delivered to the mill of the defendant. Owing to the fact that they were relatives
and that the plaintiffs reposed special reposed special trust and confidence in the
defendant, who was their nephew, they were not as careful and prudent in their business
dealings with him as they should have been. Plaintiffs allege that their respective palay
was delivered to the defendant at his mill with the understanding and agreement between
them that they should receive the highest market price for the palay for that season, which
was P8.50 per cavan. They further allege that about August first they made another contract
in and by which he promised and agreed to pay them P8.40 per cavan for their palay, in
consideration of which they agreed to extend the time for payment to the first of December
of that year. The amount of palay is not in dispute, and the defendant admits that it was
delivered to his mill, but he claims that he kept it on deposit and as bailee without hire
for the plaintiffs and at their own risk, and that the mill was burned down, and that at
the time of the fire, plaintiffs' palay was in the mill. The lower court found as a fact
that there was no merit in that defense, and that there was but little, if any, palay in
the mill at the time of the fire and that in truth and in fact that defense was based upon
perjured testimony.
The two cases were tried separately in the court below, but all of the evidence in the case
was substituted and used in the other. Both plaintiffs testified to the making of the
respective contracts as alleged in their complaint; to wit, that they delivered the palay
to the defendant with the express understanding and agreement that he would pay them for
the palay the highest market price for the season, and to the making of the second contract
about the first of August, in which they had a settlement, and that the defendant then
agreed to pay them P8.40 per cavan, such payment to be made on December first. It appears
that the highest market price for palay for that season was P8.50 per cavan. The defendant
denied the making of either one of those contracts, and offered no other evidence on that
question. That is to say, we have the evidence of both Silvestra Baron and Guillermo Baron
to the making of those contracts, which is denied by the defendant only. Plaintiffs' evidence
is also corroborated by the usual and customary manner in which the growers sell their
palay. That is to say, it is their custom to sell the palay at or about the time it is
delivered at the mill and as soon as it is made ready for market in the form of rice. As
stated the lower court found as a fact that the evidence of the defendants as to plaintiffs'
palay being in the mill at the time of the fire was not worthy of belief, and that in legal
effect it was a manufactured defense. Yet, strange as it may seem, both the lower court and
this court have found as a fact that upon the question of the alleged contracts, the evidence
for the defendant is true and entitled to more weight than the evidence of both plaintiffs
which is false.
It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age and the
aunt of the defendant, and Guillermo Baron is the uncle. Under the theory of the lower court
and of this court, both of them at all the time during the high prices held their palay in
defendant's mill at their own risk, and that upon that point the evidence of the defendant,
standing alone is entitled to more weight and is more convincing than the combined evidence
of the two plaintiffs. In the very nature of things, if defendant's evidence upon that point
is true, it stands to reason that, following the custom of growers, the plaintiffs would
have sold their palay during the period of high prices, and would not have waited until it
dropped from P8.50 per cavan to P6.15 per cavan about the first of August. Upon that
question, both the weight and the credibility of the evidence is with the plaintiffs, and
they should have judgment for the full amount of their palay on the basis of P8.40 per
cavan. For such reason, I vigorously dissent from the majority opinion.
I frankly concede that the attachment was wrongful, and that it should never have been
levied. It remained in force for a period of one hundred and seventy days at which time it
was released on motion of the plaintiffs. The defendant now claims, and the majority opinion
has allowed him, damages for that full period, exclusive of Sundays, at the rate, of P40
per day, found to be the net profit for the operation of the rice mill. It further appears,
and this court finds, that the defendant was a responsible man, and that he had ample
property out which to satisfy plaintiffs' claim. Assuming that to be true, there was no
valid reason why he could not had given a counter bond and released the attachment. Upon
the theory of the majority opinion, if the plaintiffs had not released the attachment, they
would still be liable to the defendant at the rate of P40 per day up to the present time.
When the mill was attached, if he was in a position to do so, it was the duty of the
defendant to give a counter bond and release the attachment and resume its operation. The
majority opinion also allowed the defendant P1,400 "for injury to the goodwill of his
business." The very fact that after a delay of about four years, both of the plaintiffs
were compelled to bring to their respective actions against the defendant to recover from
him on a just and meritorious claim, as found by this court and the lower court, and the
further fact that after such long delay, the defendant has sought to defeat the actions by
a sham and manufactured defense, as found by this and the lower court, would arouse the
suspicion of any customers the defendant ever had, and shake their confidence in his business
honor and integrity, and destroy any goodwill which he ever did have. Under such conditions,
it would be strange that the defendant would have any customers left. He is not entitled to
any compensation for the loss of goodwill, and P5,000 should be the very limit of the amount
of his damages for the wrongful attachment, and upon that point I vigorously dissent. In
all other respects, I agree with the majority opinion.

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Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 189871 August 13, 2013

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

D E C I S I O N

PERALTA, J.:
This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008
of the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9,
2009 denying petitioner’s motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration
Branch of the National Labor Relations Commission (NLRC) against respondents Gallery Frames
(GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 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 ₱158,919.92.
The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of
showing that complainant was dismissed from employment for a just or valid cause. All the
more, it is clear from the records that complainant was never afforded due process before
he was terminated. As such, we are perforce constrained to grant complainant’s prayer for
the payments of separation pay in lieu of reinstatement to his former position, considering
the strained relationship between the parties, and his apparent reluctance to be reinstated,
computed only up to promulgation of this decision as follows:
SEPARATION PAY

Date Hired = August 1990

Rate = ₱198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

₱198.00 x 26 days x 8 months = ₱41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = ₱196.00

Date of Decisions = Aug. 18, 1998

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

₱196.00/day x 12.36 mos. = ₱62,986.56

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

Prevailing Rate per day = ₱62,986.00

₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

T O T A L = ₱95.933.76
x x x x
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of
constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred
eighty-six pesos and 56/100 (₱62,986.56) 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 (₱95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the
Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August
24, 2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion
for Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332.
Finding no reversible error on the part of the CA, this Court denied the petition in the
Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and
executory on May 27, 2002.9The case was, thereafter, referred back to the Labor Arbiter. A
pre-execution conference was consequently scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January 24, 1997 up to the finality
of the Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation
and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31.12
On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the
Sheriff to collect from respondents the total amount of ₱471,320.31. Respondents filed a
Motion to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter
awarded separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no more
recomputation is required to be made of the said awards. They claimed that after the decision
becomes final and executory, the same cannot be altered or amended anymore.14 On January 13,
2003, the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of
Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of the respondents and ordered the recomputation
of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to
be final and executory. Consequently, another pre-execution conference was held, but
respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award in the sum of
₱471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total
amount of only ₱147,560.19.
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 ₱147,560.19, which petitioner
eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the
amount of ₱11,459.73. 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 ₱158,919.92 that should be executed. Thus, since petitioner already received
₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but
it was likewise denied in the Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 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.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated
October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC
WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT
TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages
in the Labor Arbiter’s decision, the same is not final until reinstatement is made or until
finality of the decision, in case of an award of separation pay. Petitioner maintains that
considering that the October 15, 1998 decision of the Labor Arbiter did not become final
and executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332
was entered in the Book of Entries on May 27, 2002, the reckoning point for the 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 of ₱158,919.92. Respondents added that it was only during the execution
proceedings that the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further recomputation of the
backwages to be awarded to petitioner at this point of the proceedings would substantially
vary the decision of the Labor Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v.
Court of Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution
was the propriety of the computation of the awards made, and whether this violated the
principle of immutability of judgment. Like in the present case, it was a distinct feature
of the judgment of the Labor Arbiter in the above-cited case that the decision already
provided for the computation of the payable separation pay and backwages due and did not
further order the computation of the monetary awards up to the time of the finality of the
judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of
the labor arbiter. The Court clarified, thus:
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, computed as of the time of the labor
arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought
to be executed by the petitioner, no essential change is made by a recomputation as this
step is a necessary consequence that flows from the nature of the illegality of dismissal
declared by the Labor Arbiter in that decision.29 A recomputation (or an original
computation, if no previous computation has been made) is a part of the law – specifically,
Article 279 of the Labor Code and the established jurisprudence on this provision – that is
read into the decision. By the nature of an illegal dismissal case, the reliefs continue to
add up until full satisfaction, as expressed under Article 279 of the Labor Code. The
recomputation of the consequences of illegal dismissal upon execution of the decision does
not constitute an alteration or amendment of the final decision being implemented. The
illegal dismissal ruling stands; only the computation of monetary consequences of this
dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it
cannot avoid as it is the risk that it ran when it continued to seek recourses against the
Labor Arbiter's decision. Article 279 provides for the consequences of illegal dismissal in
no uncertain terms, qualified only by jurisprudence in its interpretation of when separation
pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal
dismissal decision becomes the reckoning point instead of the reinstatement that the law
decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to
that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines regarding the manner
of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 234 of Circular No.
905, Series of 1982 and, accordingly, issued Circular No. 799,35 Series of 2013, effective
July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts,
thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks
and Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank
Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest
that would govern the parties, the rate of legal interest for loans or forbearance of any
money, goods or credits and the rate allowed in judgments shall no longer be twelve percent
(12%) per annum - as reflected in the case of Eastern Shipping Lines40and Subsection X305.1
of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB
Circular No. 799 - but will now be six percent (6%) per annum effective July 1, 2013. It
should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall
be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B.
Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB
to set interest rates and to issue and enforce Circulars when it ruled that "the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low priority such
as consumer loans, as well as such loans made by pawnshops, finance companies and similar
credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to
July 1, 2013, said judgments shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
measure of recoverable damages.1âwphi1
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.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July
1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in 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.

Footnotes
1 Penned by Associate Justice Vicente S. E. 29 Id. at 25.
Veloso, with Associate Justices Rebecca De 30 Id. at 25-26.
Guia-Salvador and Ricardo R. Rosario, 31 Id. at 26.

concurring; rollo, pp. 33-48. 32 G.R. No. 97412, July 12, 1994, 234 SCRA
2 Id. at 32. 78.
3 Id. at 79-84. 33 Eastern Shipping Lines, Inc. v. Court of
4 Id. at 82-84. (Emphasis supplied.) Appeals, supra, at 95-97. (Citations
5 Id. at 85-93. omitted; italics in the original).
6 Resolution dated July 24, 2000, id. at 34 SECTION 2. The rate of interest for the

94-96. loan or forbearance of any money, goods or

7 Rollo, p. 35. credits and the rate allowed in judgments,
8 Id. at 35-36. in the absence of express contract as to
9 Id. at 36. such rate of interest, shall continue to be
10 Id. at 100. twelve percent (12%) per annum.
11 Id. 35 Rate of interest in the absence of
12 Id. at 101. stipulation; Dated June 21, 2013.
13 Id. at 97-102. 36 § X305.1 Rate of interest in the absence
14 Id. at 37. of stipulation. The rate of interest for
15 Id. at 103-108. the loan or forbearance of any money, goods
16 Id. at 109-113. or credits and the rate allowed in
17 Id. at 114-117. judgments, in the absence of expressed
18 Id. at 101. contract as to such rate of interest, shall
19 Id. at 40. be twelve percent (12%) per annum.
20 Id. at 65-69. 37 The Section is under Q Regulations or
21 Id. at 70-74. Regulations Governing Non-Bank Financial
22 Id. at 60-64. Institutions
23 Id. at 58-59. Performing Quasi-Banking Functions. It
24 Id. at 33-48. reads:
25 Id. at 32. § 4305Q.1 (2008 - 4307Q.6) Rate of interest
26 Id. at 27. in the absence of stipulation. The rate of
27 G.R. No. 172149, February 8, 2010, 612 interest for the loan or forbearance of any
SCRA 10. money, goods or credit and the rate allowed
28 Session Delights Ice Cream and Fast Foods in judgments, in the absence of express
v. Court of Appeals (Sixth Division), contract as to such rate of interest, shall
supra, at 21-23. be twelve percent (12%) per annum.
38 The Section is under S Regulations or
Regulations Governing Non-Stock Savings and
Loan Associations. It reads:
§ 4305S.3 Interest in the absence of
contract. In the absence of express
contract, the rate of interest for the loan
or forbearance of any money, goods or
credit and the rate allowed in judgment
shall be twelve percent (12%) per annum.
39 The Section is under P Regulations or
Regulations Governing Pawnshops. It reads:
§ 4303P.1 Rate of interest in the absence
of stipulation. The rate of interest for a
loan or forbearance of money in the absence
of an expressed contract as to such rate of
interest, shall be twelve percent (12%) per
annum. (Circular No. 656 dated 02 June
2009)
40 Supra note 32, at 95-97.
41 G.R. No. 192986, January 15, 2013, 688
SCRA 530, 547.
42 Supra note 32.