~A.C. ENTERPRISES, INC., petitioner, vs.

CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and DEE

CONSTRUCTION CORPORATION, respondents. G.R. No. 101444 May 9, 1995 R E S O L U T I O N -QUIASON, J.:
In their Second Motion For Partial Reconsideration, private respondent insists that it is entitled to interest at the rate of 12% per
annum on the monetary award given them by the Construction Industry Arbitration Commission (CIAC). It contends that under
Executive Order No. 1008 dated February 4, 1985 and the Rules of Procedure Governing Construction Arbitration, arbitral awards
are final and "inappealable (sic)" and pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78
(1994), monetary awards in all judgments that became final and executory, regardless of the nature of the obligation, shall bear
legal interest of 12% per annum.

The obligation that was breached in the arbitration case at bench was not based on a loan or forbearance of money, and therefore
was not covered by Central Bank Circular No. 416.
In Reformina v. Tomol, Jr., 139 SCRA 260 (1985), we made clear that the award of legal interest at 12% per annumunder said
Central Bank Circular shall be adjudged only in cases involving the loan or forbearance of money (See also Pilipinas Bank v. Court
of Appeals, 225 SCRA 268 [1993]). However, in Eastern Shipping Lines, Inc., we held that when the judgment awarding a sum of
money becomes final and executory, the monetary award shall earn interest at 12% per annum from the date of such finality until
its satisfaction, regardless of whether the case involves a loan or forbearance of money. The reason is that this interim period is
deemed to be by then equivalent to a forbearance of credit. We quote from Eastern Shipping Lines, Inc., supra., at pp. 95-97:
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 courtat 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(Emphasis supplied).
It appears that private respondent equated, and wrongly at that, the term "final and inappealable (sic)" as used in E.O. No. 1008
and the Rules of Procedure Governing Construction Arbitration with the term "final and executory" as used in Eastern Shipping
Lines, Inc.
Section 19 of E.O. No. 1008 dated February 4, 1985 provides as follows:
Finality of Awards The arbitral award shall be binding upon the parties. It shall be final and inappealable (sic) except on
questions of law which shall be appealable to the Supreme Court (Emphasis supplied).
Section 2 of Article XVI of the Rules of Procedure Governing Construction Arbitration provides as follows:
Appeals Pursuant to Section 19 of Executive Order No. 1008 dated 4 February 1985, arbitral awards
are final and inappealable (sic) except on questions of law which shall be appealable to the Supreme Court before the award
becomes final. An appeal shall not stay the award unless the Supreme Court shall direct otherwise upon such terms as it may
deem just. An appeal from an arbitral award or an order/decision of the CIAC shall be perfected by filing with the CIAC a notice of

appeal and with the Supreme Court twelve (12) copies of a petition for review of the award, order, or decision complained of
within 30 days from notice of such award, order, or decision (Emphasis supplied).
A "final and inappealable (sic)" judgment is not the same as a "final and executory" one. The former becomes executory only as in
the case of an award by the CIAC after the lapse of 30 days from receipt of notice thereof and no petition for review to the Supreme
Court is made (Rules of Procedure Governing Construction Arbitration, Art. XVI, Sec. 1).
While the petition for review does not automatically suspend the execution of the award of the CIAC, the Supreme Court may direct
a stay of the execution. In the case at bench, the Court issued a temporary restraining order to stay the execution of the award
(Resolution, October 14, 1991).
The CIAC award did not become "final and executory" until after service of a copy of the Resolution dated April 8, 1992 of this
Court, denying the motion for reconsideration. The award was fully paid to private respondent on May 6, 1992 (Rollo, p. 456). We
consider the interest that accrued from April 8 to May 6, 1992, a period of less than a month, as de minimis as to warrant its
charging against the award.
IN VIEW OF THE FOREGOING, the Court RESOLVED:
(1) to GRANT private respondent's Motion for Leave to File and Admit Attached Second Motion for Partial Reconsideration; and
(2) to DENY the Second Motion for Partial Reconsideration.
Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza and Francisco, JJ.,
concur. Feliciano, J., took no part.

~EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents. G.R. No. 97412 July 12, 1994
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be
a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the
payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve
percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to
the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the
value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to
plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port
Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents
was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed
and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 8586, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As
for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although
subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record);
Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the
shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised
extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records,
p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages.
The two drums were shipped in good order and condition, as clearly shown by the Bill of
Lading and Commercial Invoice which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage).
This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional
Survey Notes", are considered. In the latter notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when
defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's
custody on January 7, 1982, one drum was found opened without seal, cello bag partly
torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one
drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the

successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full
force and effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has been advised
and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes"
(Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of
the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall
be to the extent of the actual invoice value of each package, crate box or container in no
case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/crossclaimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct.
As there is sufficient evidence that the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the
consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of
the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY
AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do
have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil
Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National
Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of
the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the
consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455),
we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and
the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves
always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary
the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both
the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability
imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of
goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount
of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of
P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 withlegal interest thereon from the date
the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award
of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be established with reasonable certainty." And as was held by
this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not
known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and
Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against
the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally
the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is
the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss
suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and
to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis
supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court
in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision
became final, the case was remanded to the lower court for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their
petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any
money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it
is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less forbearances
of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the
said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of interest agreed upon, and in the absence of stipulation, the legal
interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for
damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat
actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint
until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6% interest per
annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse
of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the
filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court
of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover
all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta).
(Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per
cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled
out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it
explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . .
. is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a
forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are
paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from
the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are
not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of
moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a
decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held
the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The
Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary
damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals,
the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendantappellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive

portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest
at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an
entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory
damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of
discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the
time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions
based on a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08
May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent
domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for
their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages.
The legal interest required to be paid on the amount of just compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the
kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest
by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first
group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila
Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate
Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the
Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding
that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16of money, goods
or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending
on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the
other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the
running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining
that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced
a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until
paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until
the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided
by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the
contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed
on such amount upon finality of this decision until the payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ.,
concur. Mendoza, J., took no part.
#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any
of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
2 28 SCRA 65.

3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto
Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion
and Justice Fred Ruiz Castro were on official leave.
4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998,
29 February 1956," 98 Phil. 516.
5 139 SCRA 260, 265.
6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina
Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino
Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred in
by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana.
7 143 SCRA 158.
8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina Melencio-Herrera,
Isagani A. Cruz and Edgardo Paras.
9 160 SCRA 334.
10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and
Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of Appeals.
11 167 SCRA 209.
12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz,
Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Grio-Aquino, Leo Medialdea and
Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in
the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part.
13 170 SCRA 461.
14 208 SCRA 542.
15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz
Regalado and Rodolfo Nocon.
16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of
lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and
payable.
17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing considering that this
case was decided upon before the issuance of Circular No. 416 by the Central Bank.
18 Art. 1157. Obligations arise from.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Qausi-delicts."

19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157.
21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.
22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon
this point.
23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins."
24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of
the court.
25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.
26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty.

~FIRST DIVISION
S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION, Petitioner, vs. ENGR. LUIS U. PARADA,
represented by ENGR. LEONARDO A. PARADA of GENLITE INDUSTRIES,Respondent. G.R. No. 183804 September 11, 2013
D E C I S I O N -REYES, J.:
Before us on appeal by certiorari1 is the Decision2 dated April 30, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 83811
which upheld the Decision3 dated May 8, 2004 of the Regional Trial Court (RTC) of Quezon City, Branch 100, in Civil Case No. Q01-45212.
Factual Antecedents
S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting materials from Gentile Industries,
a sole proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-Rite project in Canlubang, Laguna. The
petitioner was unable to pay for the above purchase on due date, but blamed it on its failure to collect under its sub-contract with
the Enviro KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to agree to settle its above
purchase, but after paying the respondent P250,000.00 on June 2, 1999,4 Enviro Kleen stopped making further payments, leaving
an outstanding balance of P816,627.00. It also ignored the various demands of the respondent, who then filed a suit in the RTC,
docketed as Civil Case No.Q-01-45212, to collect from the petitioner the said balance, plus damages, costs and expenses, as
summarized in the RTCs decision, as follows:

The petitioner in its answer denied liability, claiming that it was released from its indebtedness to the respondent by reason of the
novation of their contract, which, it reasoned, took place when the latter accepted the partial payment of Enviro Kleen in its behalf,
and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in the petitioners place. After trial, the RTC rendered
judgment6 on May 28, 2004 in favor of the respondent, the fallo of which reads, as follows:
WHEREFORE, judgment is hereby rendered for the respondent. The petitioner is hereby ordered to pay the respondent the
following:
A. the sum of P816,627.00 representing the principal obligation due;
B. the sum equivalent to twenty percent (20%)per month of the principal obligation due from date of judicial demand until
fully paid as and for interest; and
C. the sum equivalent to twenty-five percent (25%) of the principal sum due as and for attorneys fees and other costs of
suits. The compulsory counterclaim interposed by the petitioner is hereby ordered dismissed for lack of merit.
SO ORDERED.7 (Emphasis supplied)
On appeal to the CA, the petitioner maintained that the trial court erred in ruling that no novation of the contract took place through
the substitution of Enviro Kleen as the new debtor. But for the first time, it further argued that the trial court should have dismissed
the complaint for failure of the respondent to implead Genlite Industries as "a proper party in interest", as provided in Section 2 of
Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or
defended in the name of the real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the defendant may move to dismiss the suit on the ground
that it was not brought in the name of or against the real party in interest, with the effect that the complaint is then deemed to state
no cause of action.
In dismissing the appeal, the CA noted that the petitioner in its answer below raised only the defense of novation, and that at no
stage in the proceedings did it raise the question of whether the suit was brought in the name of the real party in interest. Moreover,
the appellate court found from the sales invoices and receipts that the respondent is the sole proprietor of Genlite Industries, and
therefore the real party-plaintiff. Said the CA:
Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would contravene the basic rules of fair play
and justice.
In any event, there is no question that respondent Engr.Luis U. Parada is the proprietor of Genlite Industries, as shown on the sales
invoice and delivery receipts. There is also no question that a special power of attorney was executed by respondent Engr.Luis U.
Parada in favor of Engr. Leonardo A. Parada authorizingthe latter to file a complaint against the petitioner.8 (Citations omitted)
The petitioner also contended that a binding novation of the purchase contract between the parties took place when the respondent
accepted the partial payment of Enviro Kleen of P250,000.00 in its behalf, and thus acquiesced to the substitution by Enviro Kleen
of the petitioner as the new debtor. But the CA noted that there is nothing in the two (2) letters of the respondent to Enviro Kleen,
dated April 14, 1999 and June 16, 1999, which would imply that he consented to the alleged novation, and, particularly, that he
intended to release the petitioner from its primary obligation to pay him for its purchase of lighting materials. The appellate court
cited the RTCs finding9 that the respondent informed Enviro Kleen in his first letter that he had served notice to the petitioner that
he would take legal action against it for its overdue account, and that he retained his option to pull out the lighting materials and
charge the petitioner for any damage they might sustain during the pull-out:
Respondent x x x has served notice to the petitioner that unless the overdue account is paid, the matter will be referred to its
lawyers and there may be a pull-out of the delivered lighting fixtures. It was likewise stated therein that incidental damages that
may result to the structure in the course of the pull-out will be to the account of the petitioner.10
The CA concurred with the RTC that by retaining his option to seek satisfaction from the petitioner, any acquiescence which the
respondent had made was limited to merely accepting Enviro Kleen as an additional debtor from whom he could demand payment,
but without releasing the petitioner as the principal debtor from its debt to him.
On motion for reconsideration,11 the petitioner raised for the first time the issue of the validity of the verification and certification of
non-forum shopping attached to the complaint. On July 18, 2008, the CA denied the said motion for lack of merit.12
Petition for Review in the Supreme Court
In this petition, the petitioner insists, firstly, that the complaint should have been dismissed outright by the trial court for an invalid
non-forum shopping certification; and, secondly, that the appellate court erred in not declaring that there was a novation of the
contract between the parties through substitution of the debtor, which resulted in the release of the petitioner from its obligation to
pay the respondent the amount of its purchase.13
Our Ruling
The petition is devoid of merit.
The verification and certification of
non-forum shopping in the
complaint is not a jurisdictional but
a formal requirement, and any
objection as to non-compliance
therewith should be raised in the
proceedings below and not for the
first time on appeal.

"It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings below. Points of law,
theories, issues and arguments not brought to the attention of the lower court, administrative agency or quasi-judicial body, need
not be considered by are viewing court, as they cannot be raised for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel."14
Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada (Leonardo), the eldest of his
three children, to perform the following acts in his behalf: a) to file a complaint against the petitioner for sum of money with
damages; and b) to testify in the trial thereof and sign all papers and documents related thereto, with full powers to enter into
stipulation and compromise.15 Incidentally, the respondent, a widower, died of cardio-pulmonary arrest on January
21,2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all surnamed Parada. They have since
substituted him in this petition, per the Resolution of the Supreme Court dated September 2, 2009.17 Also, on July 23, 2009, Luis,
Jr. and Lalaine Parada executed an SPA authorizing their brother Leonardo to represent them in the instant petition.18
In the verification and certification of non-forum shopping attached to the complaint in Civil Case No. Q01-45212, Leonardo as
attorney-in-fact of his father acknowledged as follows:
xxxx
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are true and correct to the best of my/our knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the above verification is invalid, since the SPA executed by
the respondent did not specifically include an authority for Leonardo to sign the verification and certification of non-forum shopping,
thus rendering the complaint defective for violation of Sections 4 and 5 of Rule 7. The said sections provide, as follows:
Sec. 4. Verification. A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are
true and correct of his personal knowledge or based on authentic records.
Sec. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the complaint or other
initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that
he has not thereto fore commenced any action or filed any claim involving the same issues in any court, or tribunal x x x and, to the
best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a
complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has
been filed or is pending, he shall report that fact x x x to the court wherein his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after
hearing.
The petitioners argument is untenable. The petitioner failed to reckon that any objection as to compliance with the requirement of
verification in the complaint should have been raised in the proceedings below, and not in the appellate court for the first time.20 In
KILUSAN-OLALIA v. CA,21 it was held that verification is a formal, not a jurisdictional requisite:
We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it is mainly intended to secure an
assurance that the allegations therein made are done in good faith or are true and correct and not mere speculation. The Court
may order the correction of the pleading, if not verified, or act on the unverified pleading if the attending circumstances are such
that a strict compliance with the rule may be dispensed with in order that the ends of justice may be served.
Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided by the norm that on the balance,
technicalities take a backseat vis--vis substantive rights, and not the other way around. x x x.22(Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be raised in the CA and in the Supreme
Court, since such an issue must be raised at the earliest opportunity in a motion to dismiss or a similar pleading. The high court
even warned that "invoking it in the later stages of the proceedings or on appeal may result in the dismissal of the action x x x."24
Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the complaint below, Section 4 of Rule 7
provides that the verification need not be based on the verifiers personal knowledge but even only on authentic records. Sales
invoices, statements of accounts, receipts and collection letters for the balance of the amount still due to the respondent from the
petitioner are such records. There is clearly substantial compliance by the respondents attorney-in-fact with the requirement of
verification.
Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that the ends of substantial justice
may be served.25 It is clear that the present controversy must be resolved on its merits, lest for a technical oversight the respondent
should be deprived of what is justly due him.
A sole proprietorship has no
juridical personality separate and
distinct from that of its owner, and
need not be impleaded as a partyplaintiff in a civil case.
On the question of whether Genlite Industries should have been impleaded as a party-plaintiff, Section 1 of Rule 3 of the Rules of
Court provides that only natural or juridical persons or entities authorized by law may be parties in a civil case. Article 44 of the New
Civil Code enumerates who are juridical persons:
Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member.
Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he conducted his business. As such,
it does not exist as a separate entity apart from its owner, and therefore it has no separate juridical personality to sue or be
sued.26 As the sole proprietor of Genlite Industries, there is no question that the respondent is the real party in interest who stood to
be directly benefited or injured by the judgment in the complaint below. There is then no necessity for Genlite Industries to be
impleaded as a party-plaintiff, since the complaint was already filed in the name of its proprietor, Engr. Luis U. Parada. To heed the
petitioners sophistic reasoning is to permit a dubious technicality to frustrate the ends of substantial justice.
Novation is never presumed but
must be clearly and unequivocally
shown.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights of the creditor.27 It is "the substitution of a new contract, debt, or
obligation for an existing one between the same or different parties."28 Article 1293 of the Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in Articles 1236and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released from the obligation, and the third
person or new debtor must assume the formers place in the contractual relation.29 Article 1293 speaks of substitution of the debtor,
which may either be in the form of expromision or delegacion, as seems to be the case here. In both cases, the old debtor must be
released from the obligation, otherwise, there is no valid novation. As explained in Garcia30:
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the
initiative for the change does not come fromand may even be made without the knowledge ofthe debtor, since it consists of a
third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation;
thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the
creditor.31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and unequivocal consent by the respondent to the release of the
petitioner from the obligation to pay the cost of the lighting materials. In fact, from the letters of the respondent to Enviro Kleen, it
can be said that he retained his option to go after the petitioner if Enviro Kleen failed to settle the petitioners debt. As the trial court
held:
The fact that Enviro Kleen Technologies, Inc. made payments to the respondent and the latter accepted it does not ipso facto result
innovation. Novation to be given its legal effect requires that the creditor should consent to the substitution of a new debtor and the
old debtor be released from its obligation (Art. 1293, New Civil Code). A reading of the letters dated 14 April 1999 (Exh. 1) and
dated 16 June 1999 (Exhs. 4 &4-a) sent by the respondent to Enviro Kleen Technologies, Inc. clearly shows that there was nothing
therein that would evince that the[respondent] has consented to the exchange of the person of the debtor from the petitioner to
Enviro Kleen Technologies, Inc.
xxxx
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the respondent expressly stated that it has served notice to
the petitioner that unless the overdue account is paid, the matter will be referred to its lawyers and there may be a pull-out of the
delivered lighting fixtures. It was likewise stated therein that incident damages that may result to the structure in the course of the
pull-out will be to the account of the petitioner.
It is evident from the two (2) aforesaid letters that there is no indication of the respondents intention to release the petitioner from
its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc. The acquiescence of Enviro Kleen Technologies, Inc. to
assume the obligation of the petitioner to pay the unpaid balance of [P]816,627.00 to the respondent when there is clearly no
agreement to release the petitioner will result merely to the addition of debtors and not novation. Hence, the creditor can still
enforce the obligation against the original debtor x x x. A fact which points strongly to the conclusion that the respondent did not
assent to the substitution of Enviro Kleen Technologies, Inc. as the new debtor is the present action instituted by the respondent
against the petitioner for the fulfillment of its obligation. A mere recital that the respondent has agreed or consented to the
substitution of the debtor is not sufficient to establish the fact that there was a novation. x x x.32
The settled rule is that novation is never presumed,33 but must be clearly and unequivocally shown.34 In order for a new agreement
to supersede the old one, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new
one.35 Thus, the mere substitution of debtors will not result innovation,36 and the fact that the creditor accepts payments from a third
person, who has assumed the obligation, will result merely in the addition of debtors and not novation, and the creditor may enforce
the obligation against both debtors.37 If there is no agreement as to solidarity, the first and new debtors are considered obligated
jointly.38 As explained in Reyes v. CA39:
The consent of the creditor to a novation by change of debtor is as indispensable as the creditors consent in conventional
subrogation in order that a novation shall legally take place. The mere circumstance of AFP-MBAI receiving payments from
respondent Eleazar who acquiesced to assume the obligation of petitioner under the contract of sale of securities, when there is

clearly no agreement to release petitioner from her responsibility, does not constitute novation. At most, it only creates a juridical
relation of co-debtorship or surety ship on the part of respondent Eleazar to the contractual obligation of petitioner to AFP-MBAI
and the latter can still enforce the obligation against the petitioner. In Ajax Marketing and Development Corporation vs. Court of
Appeals which is relevant in the instant case, we stated that
"In the same vein, to effect a subjective novation by a change in the person of the debtor, it is necessary that the old debtor be
released expressly from the obligation, and the third person or new debtor assumes his place in the relation. There is no novation
without such release as the third person who has assumed the debtors obligation becomes merely a co-debtor or surety. xxx.
Novation arising from a purported change in the person of the debtor must be clear and express xxx."
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence, the
principle novatio non praesumitur that novation is never presumed. At bottom, for novation to be a jural reality, its animus must
be ever present, debitum pro debito basically extinguishing the old obligation for the new one.40 (Citation omitted)
The trial court found that the respondent never agreed to release the petitioner from its obligation, and this conclusion was upheld
by the CA. We generally accord utmost respect and great weight to factual findings of the trial court and the CA, unless there
appears in the record some fact or circumstance of weight and influence which has been overlooked, or the significance of which
has been misinterpreted, that if considered would have affected the result of the case.41 We find no such oversight in the
appreciation of the facts below, nor such a misinterpretation thereof, as would otherwise provide a clear and unequivocal showing
that a novation has occurred in the contract between the parties resulting in the release of the petitioner.
Pursuant to Article 2209 of the
Civil Code, except as provided
under Central Bank Circular
No. 905, and now under Bangko
Sentral ng Pilipinas Circular
No. 799, which took effect on
July 1, 2013, the respondent may
be awarded interest of six percent
(6%) of the judgment amount by
way of actual and compensatory
damages.
It appears from the recital of facts in the trial courts decision that the respondent demanded interest of two percent (2%) per month
upon the balance of the purchase price of P816,627.00, from judicial demand until full payment. There is then an obvious clerical
error committed in the fallo of the trial courts decision, for it incorrectly ordered the defendant there into pay "the sum equivalent to
twenty percent (20%) per month of the principal obligation due from date of judicial demand until fully paid as and for interest."42
A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made by a clerk or a transcriber; a
mistake in copying or writing.43 The Latin maxims Error placitandi aequitatem non tollit ("A clerical error does not take away equity"),
and Error scribentis nocere non debit ("An error made by a clerk ought not to injure; a clerical error may be corrected") are apt in
this case.44 Viewed against the landmark case of Medel v. CA45, an award of interest of 20% per month on the amount due is clearly
excessive and iniquitous. It could not have been the intention of the trial court, not to mention that it is way beyond what the plaintiff
had prayed for below.
It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or which are null and void per se,
and thus may be questioned at any time, when a decision is final, even the court which issued it can no longer alter or modify it,
except to correct clerical errors or mistakes.46
The foregoing notwithstanding, of more important consideration in the case before us is the fact that it is nowhere stated in the trial
courts decision that the parties had in fact stipulated an interest on the amount due to the respondent. Even granting that there
was such an agreement, there is no finding by the trial court that the parties stipulated that the outstanding debt of the petitioner
would be subject to two percent (2%) monthly interest. The most that the decision discloses is that the respondent demanded a
monthly interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that "if the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and
in the absence of stipulation, the legal interest, which is six percent per annum." Pursuant to the said provision, then, since there is
no finding of a stipulation by the parties as to the imposition of interest, only the amount of 12% per annum 47 may be awarded by
the court by way of damages in its discretion, not two percent(2%) per month, following the guidelines laid down in the landmark
case of Eastern Shipping Lines v. Court of Appeals,48 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.49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or forbearance of money, goods or credit describes a contractual
obligation whereby a lender or creditor has refrained during a given period from requiring the borrower or debtor to repay the loan
or debt then due and payable.51 Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall
be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of indemnities in the
concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum."
The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor to
refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows:
The12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as
to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil
Code applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general," with the application of both rates reckoned "from the time the complaint was
filed until the adjudged amount is fully paid." In either instance, the reckoning period for the commencement of the running of the
legal interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on
the award of interest."52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29,1974,53 in the absence of a written stipulation, the interest rate
to be imposed in judgments involving a forbearance of credit shall be 12% per annum, up from 6% under Article 2209 of the Civil
Code. This was reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law from January 1,
1983.54 But if the judgment refers to payment of interest as damages arising from a breach or delay in general, the applicable
interest rate is 6% per annum, following Article 2209 of the Civil Code.55 Both interest rates apply from judicial or extrajudicial
demand until finality of the judgment. But from the finality of the judgment awarding a sum of money until it is satisfied, the award
shall be considered a forbearance of credit, regardless of whether the award in fact pertained to one, and therefore during this
period, the interest rate of 12% per annum for forbearance of money shall apply.56
But notice must be taken that in Resolution No. 796 dated May 16,2013, the Monetary Board of the Bangko Sentral ng Pilipinas
approved the revision of the interest rate to be imposed 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. Thus, under BSP Circular No.799, issued
on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), viz:
BANGKO SENTRAL NG PILIPINAS
OFFICE OF THE GOVERNOR
CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
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 X305.1 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 are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
FOR THE MONETARY BOARD:
DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorneys fees is not proper.
Other than to say that the petitioner "unjustifiably failed and refused to pay the respondent," the trial court did not state in the body
of its decision the factual or legal basis for its award of attorneys fees to the respondent, as required under Article 2208 of the New
Civil Code, for which reason we have resolved to delete the same. The rule is settled that the trial court must state the factual, legal

or equitable justification for its award of attorneys fees.57Indeed, the matter of attorneys fees cannot be stated only in the
dispositive portion, but the reasons must be stated in the body of the courts decision.58 This failure or oversight of the trial court
cannot even be supplied by the CA. As concisely explained in Frias v. San Diego-Sison59:
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable,
just and equitable if the same were to be granted. Attorneys fees as part of damages are not meant to enrich the winning party at
the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. The award of attorneys fees is the exception rather than the general rule. As such, it is
necessary for the trial court to make findings of facts and law that would bring the case within the exception and justify the grant of
such award. The matter of attorneys fees cannot be mentioned only in the dispositive portion of the decision. They must be clearly
explained and justified by the trial court in the body of its decision. On appeal, the CA is precluded from supplementing the bases
for awarding attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding the
same.1wphi1Consequently, the award of attorneys fees should be deleted.60 (Citations omitted)
WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No. 83811 is
AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld Construction and Development Corporation is ordered to pay
respondent Engr. Luis A. Parada, represented by Engr. Leonardo A. Parada, the principal amount due of P816,627.00, plus interest
at twelve percent (12%) per annum, reckoned from judicial demand until June 30, 2013, and six percent (6%) per an own from July
1, 2013 until finality hereof, by way of actual and compensatory damages. Thereafter, the principal amount due as adjusted by
interest shall likewise earn interest at six percent (6%) per annum until fully paid. The award of attorney's fees is DELETED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO
LUCAS P. BERSAMIN
Associate Justice
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
C E R T I F I CAT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
1

Rollo, pp. 11-32.

Penned by Associate Justice Fernanda Lampas Peralta, with Associate Justices Edgardo P. Cruz and Apolinario D. Bruselas, Jr.,
concurring; id. at 33-44.
3
Penned by Judge Marie Christine A. Jacob; id. at 71-74.
4
Id. at 69.
5
Id. at 71-72.
6
Id. at 71-74.
7
Id. at 73-74.
8
Id. at 38.
9
Id. at 73.
10
Id.
11
Id. at 47-56.
12
Id. at 45.
13
Id. at 17.
14
Besana v. Mayor, G.R. No. 153837, July 21, 2010, 625 SCRA 203, 214, citing Jacot v. Dal, G.R. No. 179848, November 27, 2008, 572
SCRA 295, 311, and Villaranda v. Villaranda, 467 Phil. 1089, 1098(2004).
15
Rollo, p. 62.
16
Id. at 119.
17
Id. at 125-126.
18
Id. at 120-121.
19
Id. at 66.
20
Gadit v. Atty. Feliciano, Sr., et al., 161 Phil. 507, 510 (1976).
21
555 Phil. 42 (2007).
22
Id. at 57.
23
446 Phil. 823 (2003).
24
Id. at 826.
25
Supra note 21, at 57.
26
Berman Memorial Park, Inc. v. Cheng, 497 Phil. 441, 451-452 (2005).
27
Garcia v. Llamas, 462 Phil. 779, 788 (2003); Agro Conglomerates, Inc. v. CA, 401 Phil. 644, 655(2000).
28
Riser Air-conditioning Services Corp., v. Confield Construction Development Corp., 481 Phil. 822,835 (2004).
2

29

Philippine Savings Bank v. Sps. Manalac, Jr., 496 Phil. 671, 689 (2005).
Supra note 27.
31
Id. at 300.
32
Rollo, pp. 72-73.
33
Ajax Marketing & Development Corporation v. CA, 318 Phil. 268 (1995); Goi v. CA, 228 Phil. 222, 232 (1986); California Bus Lines,
Inc. v. State Investment House, Inc., 463 Phil. 689, 702 (2003).
34
Mercantile Insurance Co., Inc., v. CA, 273 Phil. 415, 423 (1991).
35
CIVIL CODE OF THE PHILIPPINES, Article 1292; Idolor v. CA, 404 Phil. 220, 228 (2001).
36
Servicewide Specialists, Inc. v. Intermediate Appellate Court, 255 Phil. 787, 800 (1989).
37
Id., citing Staight v. Haskell, 49 Phil. 614 (1926); Testate Estate of Mota v. Serra, 47 Phil. 464(1925); E.C. McCullough & Co. v. Veloso
and Serna, 46 Phil. 1 (1924); Pacific Commercial Co. v. Sotto, 34Phil. 237 (1916).
38
Id., citing Lopez v. CA, et al., 200 Phil. 150, 166 (1982); Dugo v. Lopena, et al., 116 Phil. 1305,1314 (1962).
39
332 Phil. 40 (1996).
40
Id. at 55-56.
41
San Sebastian College v. CA, 274 Phil. 414, 421 (1991).
42
Rollo, p. 74.
43
Black v. Republic of the Philippines, 104 Phil. 848, 849 (1958); Beduya v. Republic, 120 Phil. 114,116 (1964).
44
Ingson v. Olaybar, 52 Phil. 395, 398 (1928).
45
359 Phil. 820 (1998).
46
Heirs of Remigio Tan v. Intermediate Appellate Court, 246 Phil. 756, 764 (1988); Vda. de Emnas v. Emnas, 184 Phil. 419, 424 (1980);
Maramba v. Lozano, 126 Phil. 833, 837 (1967).
47
Now reduced to 6% under BSP Circular No. 799 which took effect on July 1, 2013.
48
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
49
Id. at 95-97.
50
G.R. No. 164401, June 25, 2008, 555 SCRA 275.
51
Id. 287-288.
52
Id.
53
July 29, 1974
CENTRAL BANK CIRCULAR NO. 416
By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the "Usury Law," the
Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such
rate of interest, shall be twelve per cent (12%) per annum. This Circular shall take effect immediately.
(SGD.) G. S. LICAROS
Governor
54
Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum.
55
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.
56
Penta Capital Finance Corporation v. Bay, G.R. No. 162100, January 18, 2012, 663 SCRA 192, 213.
57
Philippine Airlines, Incorporated v. CA, G.R. No. 123238, September 22, 2008, 566 SCRA 124,138.
58
Buing v. Santos, 533 Phil. 610, 617 (2006).
59
549 Phil. 49 (2007).
60
Id. at 63-65.
30

~EN BANC
G.R. No. 192986
January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman, GOVERNOR ARMANDO M. TETANGCO, JR., and
its incumbent members: JUANITA D. AMATONG, ALFREDO C. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE,
IGNACIO R. BUNYE and CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance to the public, filed directly with this Court this Petition
for Certiorari under Rule 65 of the 1997 Rules of Court, seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board
(BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority to
continue enforcing Central Bank Circular No. 905,1 issued by the CB-MB in 1982, which "suspended" Act No. 2655, or the Usury
Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation organized to engage in pro bono
concerns and activities relating to money lending issues. It was incorporated on July 9, 2010,2 and a month later, it filed this
petition, joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-MB to, among others,
set the maximum interest rates which banks may charge for all types of loans and other credit operations, within limits prescribed
by the Usury Law. Section 109 of R.A. No. 265 reads:

Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix the maximum rates of interest which banks
may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of interest which banks may charge
for different types of loans and for any other credit operations, or may fix the maximum differences which may exist between the
interest or rediscount rates of the Central Bank and the rates which the banks may charge their customers if the respective credit
documents are not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending operations of the banks shall apply only to
future operations and not to those made prior to the date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board may also fix the maximum rates
that banks may pay to or collect from their customers in the form of commissions, discounts, charges, fees or payments of any sort.
(Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CB-MB authority to prescribe
different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in advance. Thus, Section 1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal
thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing
economic and social conditions: Provided, That changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum rates for loans of low priority,
such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit
institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also
authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB Circular No. 905, Series of 1982, effective on January
1, 1983. Section 1 of the Circular, under its General Provisions, removed the ceilings on interest rates on loans or forbearance of
any money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person,
whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CBs "Manual of Regulations for Banks and Other Financial Intermediaries"
(Manual of Regulations) by removing the applicable ceilings on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular
No. 905 amended Book I, Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the ceilings for interest and
other charges, commissions, premiums, and fees applicable to commercial banks; Sections 12 and 17 removed the interest
ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21 removed the ceilings applicable to rural banks (Book
III, Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial intermediaries (Book IV,
Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas (BSP) to
replace the CB. The repealing clause thereof, Section 135, reads:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of this Act, Republic Act No. 265, as
amended, the provisions of any other law, special charters, rule or regulation issued pursuant to said Republic Act No. 265, as
amended, or parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court to secure a writ of certiorari, petitioners contend that
the transcendental importance of their Petition can readily be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or constitutional authority to prescribe
the maximum rates of interest for all kinds of credit transactions and forbearance of money, goods or credit beyond the
limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest ceilings
and thus suspended Act No. 2655 as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions of the 10th Congress, which held its sessions
from 1995 to 1998, calling for investigations by the Senate Committee on Banks and Financial Institutions into alleged
unconscionable commercial rates of interest imposed by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator
Vicente C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend Act No. 2655 by fixing the rates of interest on
loans and forbearance of credit; Philippine Senate Resolution (SR) No. 1053,8 10739 and 1102,10 filed by Senators Ramon B.
Magsaysay, Jr., Gregorio B. Honasan and Franklin M. Drilon, respectively, urged the aforesaid Senate Committee to investigate
ways to curb the high commercial interest rates then obtaining in the country; Senator Ernesto Maceda filed SB No. 1151 to prohibit
the collection of more than two months of advance interest on any loan of money; and Senator Raul Roco filed SR No.
114411seeking an investigation into an alleged cartel of commercial banks, called "Club 1821", reportedly behind the regime of high
interest rates. The petitioners also attached news clippings12 showing that in February 1998 the banks prime lending rates, or
interests on loans to their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB was authorized only to
prescribe or set the maximum rates of interest for a loan or renewal thereof or for the forbearance of any money, goods or credits,
and to change such rates whenever warranted by prevailing economic and social conditions, the changes to be effected gradually
and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest on all credit
transactions, when it issued CB Circular No. 905. They further insist that under Section 109 of R.A. No. 265, the authority of the
CB-MB was clearly only to fix the banks maximum rates of interest, but always within the limits prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without the benefit of any prior public hearing, is void
because it violated Article 5 of the New Civil Code, which provides that "Acts executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the benchmark 91-day Treasury bills (T-bills),13 then
known as "Jobo" bills14 shot up to 40% per annum, as a result. The banks immediately followed suit and re-priced their loans to

rates which were even higher than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also unconstitutional
in light of Section 1 of the Bill of Rights, which commands that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section 109 of R.A. No. 265, and therefore, in
view of the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the power either to prescribe the
maximum rates of interest which banks may charge for different kinds of loans and credit transactions, or to suspend Act No. 2655
and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to grant due course thereto, is addressed to the sound
discretion of the court.15 A petition for certiorari being an extraordinary remedy, the party seeking to avail of the same must strictly
observe the procedural rules laid down by law, and non-observance thereof may not be brushed aside as mere technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal exercising judicial or quasi-judicial
functions.17 Judicial functions are exercised by a body or officer clothed with authority to determine what the law is and what the
legal rights of the parties are with respect to the matter in controversy. Quasi-judicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to investigate facts or ascertain the existence of facts, hold
hearings, and draw conclusions from them as a basis for their official action using discretion of a judicial nature.18
The CB-MB (now BSP-MB) was created to perform executive functions with respect to the establishment, operation or liquidation of
banking and credit institutions, and branches and agencies thereof.19 It does not perform judicial or quasi-judicial functions.
Certainly, the issuance of CB Circular No. 905 was done in the exercise of an executive function. Certiorari will not lie in the instant
case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question." In private suits, Section 2, Rule 3 of the
1997 Rules of Civil Procedure provides that "every action must be prosecuted or defended in the name of the real party in interest,"
who is "the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."
Succinctly put, a partys standing is based on his own right to the relief sought.21
Even in public interest cases such as this petition, the Court has generally adopted the "direct injury" test that the person who
impugns the validity of a statute must have "a personal and substantial interest in the case such that he has sustained, or will
sustain direct injury as a result."22 Thus, while petitioners assert a public right to assail CB Circular No. 905 as an illegal executive
action, it is nonetheless required of them to make out a sufficient interest in the vindication of the public order and the securing of
relief. It is significant that in this petition, the petitioners do not allege that they sustained any personal injury from the issuance of
CB Circular No. 905.
Petitioners also do not claim that public funds were being misused in the enforcement of CB Circular No. 905. In Kilosbayan, Inc. v.
Morato,23 involving the on-line lottery contract of the PCSO, there was no allegation that public funds were being misspent, which
according to the Court would have made the action a public one, "and justify relaxation of the requirement that an action must be
prosecuted in the name of the real party-in-interest." The Court held, moreover, that the status of Kilosbayan as a peoples
organization did not give it the requisite personality to question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for bringing this suit. It does not detract from the high regard
for petitioners as civic leaders to say that their interest falls short of that required to maintain an action under the Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government,25 it was held that no question involving the
constitutionality or validity of a law or governmental act may be heard and decided by the court unless there is compliance with the
legal requisites for judicial inquiry, namely: (a) that the question must be raised by the proper party; (b) that there must be an actual
case or controversy; (c) that the question must be raised at the earliest possible opportunity; and (d) that the decision on the
constitutional or legal question must be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements before taxpayers, voters, concerned citizens,
and legislators can be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be
settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as
legislators.
While the Court may have shown in recent decisions a certain toughening in its attitude concerning the question of legal standing, it
has nonetheless always made an exception where the transcendental importance of the issues has been established,
notwithstanding the petitioners failure to show a direct injury.27 In CREBA v. ERC,28 the Court set out the following instructive guides
as determinants on whether a matter is of transcendental importance, namely: (1) the character of the funds or other assets
involved in the case; (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government; and (3) the lack of any other party with a more direct and specific interest
in the questions being raised. Further, the Court stated in Anak Mindanao Party-List Group v. The Executive Secretary29 that the
rule on standing will not be waived where these determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the implementation of CB Circular No. 905. Neither were
borrowers who were actually affected by the suspension of the Usury Law joined in this petition. Absent any showing of
transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition adverted to the regime of high interest rates which obtained at least 15
years ago, when the banks prime lending rates ranged from 26% to 31%,30 or even 29 years ago, when the 91-day Jobo bills
reached 40% per annum. In contrast, according to the BSP, in the first two (2) months of 2012 the bank lending rates averaged
5.91%, which implies that the banks prime lending rates were lower; moreover, deposit interests on savings and long-term deposits
have also gone very low, averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be approaching 0%.1wphi1 In the auctions held on
November 12, 2012, the rates of 3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and 0.680%,

respectively.32 According to Manila Bulletin, this very low interest regime has been attributed to "high liquidity and strong investor
demand amid positive economic indicators of the country."33
While the Court acknowledges that cases of transcendental importance demand that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure,34 the delay of at least 15 years in the filing of the instant petition has actually
rendered moot and academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners allegations of constitutional and statutory violations of CB Circular No. 905 are
really mere challenges made by petitioners concerning the wisdom of the Circular. It explains that it was in view of the global
economic downturn in the early 1980s that the executive department through the CB-MB had to formulate policies to achieve
economic recovery, and among these policies was the establishment of a market-oriented interest rate structure which would
require the removal of the government-imposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in
many cases. As the Court explained in the landmark case of Medel v. CA,36 citing several cases, CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply suspended the latters effectivity;"37that "a CB Circular cannot repeal a law,
[for] only a law can repeal another law;"38 that "by virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective;"39 and "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41 cited in DBP v. Perez,42 we also belied the contention that
the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity. The
illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another
law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the PNB to unilaterally increase the rate of
interest to 25% per annum, plus a penalty of 6% per annum on past dues, then to 30% on October 15, 1984, and to 42% on
October 25, 1984. The Supreme Court invalidated the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the parties freedom of contract to
agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions, premiums, fees and other charges, on
a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to
the Usury Law, as amended." It does not purport to suspend the Usury Law only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not retain this power of
its predecessor, in view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A.
No. 7653 did not reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the
Usury Law, as amended, 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.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it
concerns loans by banks and other financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it
would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be passed with deliberation
and full knowledge of all laws existing pertaining to the subject.46 An implied repeal is predicated upon the condition that a
substantial conflict or repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal, a
subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy exists in the
terms of the new and old laws.47 We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable, and iniquitous
interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and
unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man.
It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained within the sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not
against the law.51 Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and
therefore cannot be ratified, nor may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right to recover the principal of a loan, nor
affect the other terms thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right
can be exercised by the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed,53following the guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,54 regarding
the manner of computing legal interest:
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.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The
12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in
the performance of obligations in general," with the application of both rates reckoned "from the time the complaint was filed until
the [adjudged] amount is fully paid." In either instance, the reckoning period for the commencement of the running of the legal
interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on the
award of interest."57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

(On leave)
ARTURO D. BRION*
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
*
On leave.
1
Rollo, pp. 48-56.
2
Id. at 40-45.
3
Id. at 48-56.
4
Id. at 10-12.
5
Id. at 13.
6
Id. at 31-32.
7
Id. at 33.
8
Id. at 34-35.
9
Id. at 36-37.
10
Id. at 38.
11
Id. at 30.
12
Id. at 26-29.
13
Treasury bills are government debt securities issued by the Bureau of the Treasury with maturities of less than 1 year.
14
Named after CB Governor Jose "Jobo" Fernandez.
15
Chong v. Dela Cruz, G.R. No. 184948, July 21, 2009, 593 SCRA 311, 313-314.
16
Sea Power Shipping Enterprises, Inc. v. Court of Appeals, 412 Phil. 603, 611 (2001).
17
Sec. 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor

any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as law and justice may require.
18
Chamber of Real Estate and Builders Associations, Inc. (CREBA) v. Energy Regulatory Commission (ERC), G.R. No. 174697, July 8,
2010, 624 SCRA 556, 571.
19
Central Bank of the Philippines v. CA, 158 Phil. 986, 993 (1974).
20
In Philnabank Employees Association v. Estanislao (G.R. No. 104209, November 16, 1993, 227 SCRA 804), the Supreme Court
refused to issue a writ of certiorari against the Secretaries of Finance and of Labor after noting that they did not act in any judicial or
quasi-judicial capacity but were merely promulgating the implementing rules of R.A. No. 6971, the Productivity Incentives Act of 1990.
21
Prof. David v. Pres. Macapagal-Arroyo, 522 Phil. 705, 755-756 (2006). (Citations omitted)
22
People of the Philippines and HSBC v. Vera, 65 Phil. 56, 89 (1937).
23
320 Phil. 171 (1995); 316 Phil. 652 (1995).
24
Id. at 696.
25
G.R. No. 96541, August 24, 1993, 225 SCRA 568.
26
Supra note 21.
27
Id.
28
Supra note 18.
29
G.R. No. 166052, August 29, 2007, 531 SCRA 583.
30
Rollo, p. 27. In contrast, as reported in the October 10, 2012 issue of the Philippine Daily Inquirer, Section B-2-1, a recent 25-year
treasury bond issue, government securities which mature in more than a year, carried an annual rate of 6.125%, way below 31%. It
fetched P63 billion, more than double the governments original offer of P30 billion.
31
See www.bsp.gov.ph/statistics.online.asp.
32
Manila Bulletin article, November 13, 2012, p. B-1: "Treasury Bill Yields Tumble to Record Lows, 91-Day at 0.150%"
33
Id.
34
Araneta v. Dinglasan, 84 Phil. 368, 373 (1949).
35
Rollo, pp. 79-80, 103-105.
36
359 Phil. 820 (1998).
37
Security Bank and Trust Co. v. RTC-Makati, Branch 61, 331 Phil. 787, 793 (1996).
38
Palanca v. Court of Appeals, G.R. No. 106685, December 2, 1994, 238 SCRA 593, 601.
39
Sps. Florendo v. CA, 333 Phil. 535, 546 (1996).
40
People v. Dizon, 329 Phil. 685, 696 (1996).
41
420 Phil. 902 (2001).
42
484 Phil. 843 (2004).
43
Supra note 41, at 914, citing Medel v. CA, supra note 36, at 829; Security Bank and Trust v. RTC-Makati, Branch 61, supra note 37;
Palanca v. CA, supra note 38.
44
G.R. No. 107569, November 8, 1994, 238 SCRA 20.
45
Id. at 25.
46
Sps. Recana, Jr. v. CA, 402 Phil. 26, 35 (2001), citing City Government of San Pablo, Laguna v. Reyes, 364 Phil. 842 (1999).
47
Berces v. Guingona, 311 Phil. 614, 620 (1995).
48
Spouses Solangon v. Salazar, 412 Phil. 816, 822 (2001), citing Sps. Almeda v. CA, 326 Phil. 309 (1996).
49
G.R. No. 168940, November 24, 2009, 605 SCRA 231
50
Id. at 232-233, citing Ibarra v. Aveyro, 37 Phil. 273, 282 (1917).
51
Medel v. CA, supra note 36, at 830.
52
First Metro Investment Corp. v. Este del Sol Mountain Reserve, Inc., supra note 41, at 918.
53
See Castro v. Tan, supra note 49, at 240; Heirs of Zoilo Espiritu v. Landrito, G.R. No. 169617, April 3, 2007, 520 SCRA 383, 394;
Cuaton v. Salud, 465 Phil. 999 (2004); Sps. Almeda v. CA, supra note 48; First Metro Investment Corp. v. Este Del Sol Mountain Reserve,
Inc., supra note 41, at 918; Ruiz v. Court of Appeals, 449 Phil. 419, 433-435 (2003); Spouses Solangon v. Salazar, supra note 48.
54
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
55
Id. at 95-97.
56
G.R. No. 164401, June 25,2008, 555 SCRA 275.
57
Id. at 288.

~SECOND DIVISION
PLANTERS DEVELOPMENT BANK, Petitioner, vs. SPOUSES ERNESTO LOPEZ and FLORENTINA LOPEZ substituted by
JOSEPH WILFRED JOVEN JOSEPH GILBERT JOVEN and MARLYN JOVEN, Respondents. G.R. No. 186332
October
23, 2013
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Planters Development Bank Planters Bank) to challenge the July
30, 2007 amended decision2 and the February 5, 2009 resolution3 of the Court of Appeals CA) in CA-G.R. CV No. 61358.
The Factual Antecedents
Sometime in 1983, the spouses Emesto and Florentina Lopez applied for and obtained a real estate loan in the amount of
3,000,000.00 from Planters Bank. The loan was intended to finance the construction of a four-story concrete dormitory building.
The loan agreement4 dated May 18, 1983 provided that the loan is payable for fourteen (14) years and shall bear a monetary
interest at twenty-one percent (21%) per annum (p.a.). Furthermore, partial drawdowns on the loan shall be based on project
completion, and shall be allowed upon submission of job accomplishment reports by the project engineer. To secure the payment of
the loan, the spouses Lopez mortgaged a parcel of land covered by Transfer Certificate of Title No. T-16233.5
On July 21, 1983, the parties signed an amendment to the loan agreement. Accordingly, the interest rate was increased to twentythree percent (23%) p.a. and the term of the loan was shortened to three years.6 On March 9, 1984, the parties executed a second
amendment to the loan agreement. The interest rate was further increased to twenty-five percent (25%) p.a. The contract also
provided that releases on the loan shall be subject to Planters Banks availability of funds.7
Meanwhile, the Philippine economy deteriorated as the political developments in the country worsened. The value of the peso
plunged. The price of the materials and the cost of labor escalated.8 Eager to finish the project, the spouses Lopez obtained an
additional loan in the amount of P1,200,000.00 from Planters Bank.
On April 25, 1984, they entered into a third amendment to the loan agreement. The amount of the loan and the interest rate were
increased to P4,200,000.00 and twenty-seven percent (27%) p.a., respectively. Furthermore, the term of the loan was shortened to
one year. The contract also provided that the remaining loan shall only be available to the spouses Lopez until June 30, 1984.9 On

the same date, the spouses Lopez increased the amount secured by the mortgage to P4,200,000.00.10 On August 15, 1984,
Planters Bank unilaterally increased the interest rate to thirty-two percent (32%) p.a.11
The spouses Lopez failed to avail the full amount of the loan because Planters Bank refused to release the remaining amount
of P700,000.00. On October 13, 1984, the spouses Lopez filed against Planters Bank complaint for rescission of the loan
agreements and for damages with the Regional Trial Court (RTC) of Makati City.12 They alleged that they could not continue the
construction of the dormitory building because Planters Bank had refused to release the remaining loan balance.
In defense, Planters Bank argued that the spouses Lopez had no cause of action. It pointed out that its refusal to release the loan
was the result of the spouses Lopezs violations of the loan agreement, namely: (1) non-submission of the accomplishment reports;
and (2) construction of a six-story building. As a counterclaim, Planters Bank prayed for the payment of the overdue released loan
in the amount of P3,500,000.00, with interest and damages.13
On November 16, 1984, Planters Bank foreclosed the mortgaged properties in favor of third parties after the spouses Lopez
defaulted on their loan.14
The RTC Ruling
In a decision15 dated August 18, 1997, the RTC ruled in Planters Banks favor. It held that the spouses Lopez had no right to rescind
the loan agreements because they were not the injured parties. It maintained that the spouses Lopez violated the loan agreement
by failing to submit accomplishment reports and by deviating from the construction project plans. It further declared that rescission
could not be carried out because the mortgaged properties had already been sold in favor of third parties. The dispositive portion of
the RTC decision provides:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering the plaintiffs to pay the defendant-bank the amount of
Three Million Five Hundred Thousand Pesos (P3,500,000.00) plus the 27% stipulated interest per annum commencing on June 22,
1994 until fully paid minus the proceeds of the foreclosed mortgaged property in the auction sale.16 (emphasis ours) Subsequently,
the RTC amended17 its decision, upon Planters Banks filing of a Motion for Partial Reconsideration and/or Amendment of the
Decision dated August 18, 1997.18 It clarified that the interest rate shall commence on June 22, 1984, as proven during trial, thus:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering the plaintiffs to pay the defendant-bank the amount of
Three Million Five Hundred Thousand Pesos (P3,500,000.00) plus the 27% stipulated interest per annum commencing on June 22,
1984 until fully paid minus the proceeds of the foreclosed mortgaged property in the auction sale.19 (emphasis ours)
CA Ruling
The spouses Lopez died during the pendency of the case. On appeal to the CA, compulsory heirs Joseph Wilfred, Joseph Gilbert
and Marlyn, all surnamed Joven20 (respondents) substituted for the deceased Florentina Lopez.
On November 27, 2006, the CA reversed the RTC ruling.21 It held that Planters Banks refusal to release the loan was a substantial
breach of the contract. It found that the spouses Lopez submitted accomplishment reports. It gave weight to Engineer Edgard
Fianzas testimony that he prepared accomplishment reports prior to the release of the funds. Moreover, Planters Banks appraisal
department head, Renato Marayag, testified that accomplishment reports were a prerequisite for the release of the loan.
It also declared that Planters Bank was estopped from raising the issue of the spouses Lopezs deviation from the construction
project. Planters Bank conducted several ocular inspections of the building from 1983 to 1987. Planters Bank continuously released
partial amounts of the loan despite its knowledge of the construction of a six-story building.
It further concluded that Planters Bank did not release the loan because the Development Bank of the Philippines (DBP) lacked
funds. Ma. Agnes Jopson Angeles, Planters Banks senior accountant for the marketing group, testified that Planters Banks source
of funds in real estate loans was DBP. According to the CA, Angeles admitted DBPs non-availability of funds in her testimony. The
dispositive ruling of the CA decision provides:
WHEREFORE, the appealed Decision is MODIFIED in that the loan interest to be paid by plaintiff-appellant to defendant-appellee
is hereby reduced to 12% per annum computed from finality of this Decision until full payment of the amount of P3.5 million, minus
the proceeds of auction sale of the foreclosed mortgaged property.22
Subsequently, the respondents filed a motion for reconsideration. They sought clarification of the dispositive portion which does not
declare the rescission of the loan and accessory contracts. On the other hand, Planters Bank filed a Comment on March 2, 2007,
praying for the reinstatement of the RTC ruling. The CA re-examined the case and treated the comment as a motion for
reconsideration. It affirmed its previous decision but modified the dispositive portion, thus:
ACCORDINGLY, defendant-appellees motion for reconsideration is DENIED while plaintiffs-appellants motion for reconsideration
is PARTLY GRANTED. The dispositive part of Our Decision dated November 27, 2006 is hereby clarified and corrected to read as
follows:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. The loan agreement between the parties, including all its
accessory contracts, is declared RESCINDED.
Plaintiffs-appellants are ordered to return to defendant-appellee bank the amount of P2,885,830.56 with interest of twelve percent
(12%) per annum from the time this Decision becomes final and executory until it is fully paid.
Defendant-appellee bank is ordered to convey and restore to plaintiffs-appellants the foreclosed property.23(emphases and
underscores supplied)
The CA also denied Planters Banks Motion for Reconsideration dated August 22, 2007, prompting it to file the present petition.
The Petitioners Position
Planters Bank reiterates in its petition before this Court that the respondents had no cause of action. It posits that the spouses
Lopez violated the loan agreements for their failure to submit accomplishment reports and by constructing a six-story building
instead of a four-story building. It maintains that there was no estoppel because only one year and twenty days have elapsed from
the violation of the contract until the spouses Lopezs filing of the complaint. It argues that there must be an unjustifiable neglect for
an unreasonable period of time for estoppel to apply. It also avers that even assuming that it breached the contract, it was only a
slight breach because onlyP700,000.00 of the P4,200,000.00 loan was not released. Moreover, it highlights that it cannot convey
the foreclosed properties because they were already sold to third parties.24
Planters Bank also clarifies its date of receipt of the CA amended decision in a Manifestation dated March 13, 2009.25 It states that
it received the amended decision on August 7, 2007, as evidenced by the attached certifications from the Makati and Manila
Central Post Offices.
The Respondents Position
In their Comments,26 the respondents reiterate the CAs arguments. They also assert that the amended decision has already
become final and executory due to Planters Banks belated filing of a motion for reconsideration on August 22, 2007. They point out
that Planters Bank unequivocably stated in the pleadings that it received a copy of the amended decision on August 2, 2007.
Furthermore, they aver that Planters Banks motion for reconsideration is a second motion for reconsideration disallowed by the

Rules of Court. They highlight that Planters Banks comment to the respondents motion for reconsideration sought the
reinstatement of the RTC ruling. Consequently, the comment is Planters Banks first motion for reconsideration.
The Issues
This case presents to us the following issues:
1) Whether the CAs amended decision dated July 30, 2007 is final and executory;
2) Whether the spouses Lopez violated the loan agreement;
a) Whether the spouses Lopez submitted accomplishment reports, and
b) Whether the spouses Lopez deviated from the construction project;
3) Whether Planters Bank substantially breached the loan agreement; and
4) Whether the amount of awards rendered by the CA is proper.
The Courts Ruling
We reverse the CAs decision.
The CAs amended decision dated July 30, 2007 is not yet final and executory
Section 13, Rule 13 of the Rules of Court provides that if service is made by registered mail, proof shall be made by an affidavit of
the person mailing of facts showing compliance with Section 7, Rule 13 of the Rules of Court and the registry receipt issued by the
mailing office. However, the presentation of an affidavit and a registry receipt is not indispensable in proving service by registered
mail. Other competent evidence, such as the certifications from the Philippine Post Office, may establish the fact and date of actual
service. These certifications are direct and primary pieces of evidence of completion of service.27
We believe Planters Banks assertion that its motion for reconsideration dated August 22, 2007 was filed on time. The Manila
Central Post Offices certification states that the amended decision was only dispatched from the Manila Central Post Office to the
Makati Central Post Office on August 2, 2007. 28 On the other hand, the Makati Central Post Offices certification provides that
Planters Banks actual receipt of the decision was on August 7, 2007. 29These certifications conclusively show that Planters Banks
counsel received the amended decision on August 7, 2007 and not on August 2, 2007.
There is also no merit to the respondents argument that Planters Banks motion for reconsideration is disallowed under Section 2,
Rule 52 of the Rules of Court.30 We point out in this respect that there is a difference between an amended judgment and a
supplemental judgment. In an amended judgment, the lower court makes a thorough study of the original judgment and renders the
amended and clarified judgment only after considering all the factual and legal issues. The amended and clarified decision is an
entirely new decision which supersedes or takes the place of the original decision. On the other hand, a supplemental decision
does not take the place of the original; it only serves to add to the original decision.31
In the present case, the CA promulgated an amended decision because it re-examined its factual and legal findings in its original
decision. Thus, Planters Bank may file a motion for reconsideration. The amended decision is an entirely new decision which
replaced the CAs decision dated November 27, 2006.
In sum, the amended decision is not yet final and executory because Planters Bank filed a motion for reconsideration on time; its
filing is allowed by the Rules of Court.
The spouses Lopez submitted accomplishment reports
We see no reason to disturb the CAs finding that the spouses Lopez religiously submitted accomplishment reports. The evidence
on record32 shows that Engr. Fianza submitted accomplishment reports from November 19, 1983 until June 9, 1984. Engr. Fianza
also testified that he prepared these accomplishment reports.33 His testimony is corroborated by the testimony of Marayag, Planters
Banks appraisal department head.
This latter testimony shows that the spouses Lopez indeed submitted accomplishment reports.
Planters Bank is estopped from opposing the spouses Lopezs deviation from the construction project
We also affirm the CAs finding that Planters Bank is estopped from opposing the spouses Lopezs construction of a six-story
building. Section 2, Rule 131 of the Rules of Court provides that whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe that a particular thing is true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or omission, be permitted to falsify it.
The concurrence of the following requisites is necessary for the principle of equitable estoppel to apply: (a) conduct amounting to
false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this
conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive, of the actual facts.
Inaction or silence may under some circumstances amount to a misrepresentation, so as to raise an equitable estoppel. When the
silence is of such a character and under such circumstances that it would become a fraud on the other party to permit the party
who has kept silent to deny what his silence has induced the other to believe and act on, it will operate as an estoppel. This
doctrine rests on the principle that if one maintains silence, when in conscience he ought to speak, equity will debar him from
speaking when in conscience he ought to remain silent.
The principle of equitable estoppel prevents Planters Bank from raising the spouses Lopezs violation of the loan agreement.
Planters Bank was already aware that the spouses Lopez were building six floors as early as September 30, 1983. Records
disclose that Planters Bank also conducted a series of ocular inspections.35 Despite such knowledge, the bank kept silent on the
violation of the loan agreement as Planters Bank still continued to release the loan in partial amounts to the spouses Lopez. As the
CA correctly pointed out, Planters Bank only raised this argument during trial a move that highly appears to be an afterthought.
Planters Bank only committed a slight or casual breach of the contract
Despite our affirmation of the CAs factual findings, we disagree with the CAs conclusion that rescission is proper. Planters Bank
indeed incurred in delay by not complying with its obligation to make further loan releases.36 Its refusal to release the remaining
balance, however, was merely a slight or casual breach as shown below. In other words, its breach was not sufficiently fundamental
to defeat the object of the parties in entering into the loan agreement. The well-settled rule is that rescission will not be permitted for
a slight or casual breach of the contract. The question of whether a breach of contract is substantial depends upon the attending
circumstances.37
The factual circumstances of this case lead us to the conclusion that Planters Bank substantially complied with its obligation. To
reiterate, Planters Bank released P3,500,000.00 of the P4,200,000.00 loan. Only the amount ofP700,000.00 was not released. This
constitutes 16.66% of the entire loan. Moreover, the progress report dated May 30, 1984 states that 85% of the six-story building
was already completed by the spouses Lopez.38 It is also erroneous to solely impute the non-completion of the building to Planters
Bank. Planters Bank is not an insurer of the buildings construction. External factors, such as the steep price of the materials and
the cost of labor, affected the erection of the building. More importantly, the spouses Lopez took the risk that the project would not
be finished when they constructed a six-story building instead of four-story structure.

Even assuming that Planters Bank substantially breached its obligation, the fourth paragraph of Article 1191 of the Civil Code
expressly provides that rescission is without prejudice to the rights of third persons who have acquired the thing, in accordance with
Article 1385 of the Civil Code. In turn, Article 1385 states that rescission cannot take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in bad faith.
In the present case, the mortgaged properties had already been foreclosed. They were already sold to the highest bidder at a
public auction. We recognize that transferees pendente lite are proper, but not indispensable, parties in this case, as they would, in
any event, be bound by the judgment against Planters Bank.39 However, the respondents did not overcome the presumption that
the buyers bought the foreclosed properties in good faith.40 The spouses Lopez did not cause the annotation of notice of lis
pendens at the back of the title of the mortgaged lot.41Moreover, the respondents did not adduce any evidence that would show that
the buyers bought the property with actual knowledge of the pendency of the present case. Furthermore, the spouses Lopezs
failure to pay the overdue loan made them parties in default, not entitled to rescission under Article 1191 of the Civil Code.
The estate of Florentina Lopez shall pay Planters Bank the amount of P3,500,000.00 with 12% monetary interest p.a. from June
22, 1984 until full payment of the obligation
Planters Bank and the spouses Lopez undertook reciprocal obligations when they entered into a loan agreement. In reciprocal
obligations, the obligation or promise of each party is the consideration for that of the other. The mere pecuniary inability of one
contracting party to fulfill an engagement does not discharge the other contracting party of the obligation in the contract.42 Planters
Banks slight breach does not excuse the spouses Lopez from paying the overdue loan in the amount of P3,500,000.00. Despite
this finding, however, we cannot sustain the imposition of the interest rate in the loan contract.
We are aware that the parties did not raise this issue in the pleadings. However, it is a settled rule that an appeal throws the entire
case open for review once accepted by this Court. This Court has thus the authority to review matters not specifically raised or
assigned as error by the parties, if their consideration is necessary in arriving at a just resolution of the case.43
In the present case, Planters Bank unilaterally increased the monetary interest rate to 32% p.a. after the execution of the third
amendment to the loan agreement. This is patently violative of the element of mutuality of contracts. Our Civil Code has long
entrenched the basic principle that the validity of or compliance to the contract cannot be left to the will of one party.44
Even if we disregard the 32% p.a., the interest rate of 27% p.a. in the third amended agreement is still excessive. In Trade &
Investment Devt Corp. of the Phil. v. Roblett Industrial Construction Corp.,45 we lowered the interest resulting charge for being
excessive in the context of its computation period . We equitably reduced the interest rate from 18% p.a. to 12% p.a. because the
case was decided with finality sixteen years after the filing of the complaint. We noted that the amount of the loan swelled to a
considerably disproportionate sum, far exceeding the principal debt.
A parallel situation prevails in the present case. Almost 29 years have elapsed since the filing of the complaint in 1984. The amount
of the principal loan already ballooned to an exorbitant amount unwarranted in fact and in operation. While the Court recognizes the
right of the parties to enter into contracts, this rule is not absolute. We are allowed to temper interest rates when necessary. We
have thus ruled in several cases that when the agreed rate is iniquitous, it is considered as contrary to morals, if not against the
law. Such stipulation is void.46
The manifest unfairness caused to the respondents by this ruling and our sense of justice dictate that we judiciously reduce the
monetary interest rate. Our imposition of the lower interest rate is based on the demands of substantial justice and in the exercise
of our equity jurisdiction.
We thus equitably reduce the monetary interest rate to 12% p.a. on the amount due computed from June 22, 1984 until full
payment of the obligation. We point out in this respect that the monetary interest accrues under the terms of the loan agreement
until actual payment is effected47 for the reason that its imposition is based on the stipulation of the parties.48
In the present case, the lower courts found that the monetary interest accrued on June 22, 1984. Incidentally, the lower courts also
found that June 22, 1984 is also the spouses Lopezs date of default.
The estate of Florentina Lopez shall further be liable for compensatory interest at the rates of 12% p.a. from June 22, 1984 until
June 30, 2013 and 6% p.a. from July 1, 2013 until the finality of this Decision
With respect to the computation of compensatory interest, Section 1 of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series
of 2013, which took effect on July 1, 2013, provides:
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. [emphasis ours]
This provision amends Section 2 of Central Bank (CB) Circular No. 905-82, Series of 1982, which took effect on January 1, 1983.
Notably, we recently upheld the constitutionality of CB Circular No. 905-82 in Advocates for Truth in Lending, Inc., et al. v. Bangko
Sentral ng Pilipinas Monetary Board, etc.49 Section 2 of CB Circular No. 905-82 provides:
Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall continue to be twelve percent (12%) per annum. [emphasis ours]
Pursuant to these changes, this Court modified the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals50in the case of
Dario Nacar v. Gallery Frames, et al.51 (Nacar). In Nacar, we established the following guidelines:
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.
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 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. 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. [emphasis ours]
Since we declare void the monetary interest agreed upon by the parties, we impose a compensatory interest of 12% p.a. which
accrues from June 22, 1984 until June 30, 2013, pursuant to CB Circular No. 905-82.52 As we have earlier stated, June 22, 1984 is
the spouses Lopezs established date of default. In recognition of the prospective application of BSP Circular No. 799, we reduce
the compensatory interest of 12% p.a. to 6% p.a. from July 1, 2013 until the finality of this Decision. Furthermore, the interest due
shall earn legal interest from the time it is judicially demanded, pursuant to Article 2212 of the Civil Code.
The estate of Florentina Lopez shall further be liable for interest at the rate of 6% p.a. from the finality of this decision until full
payment of the obligation
Also, pursuant to the above-quoted Section 1 of BSP Circular No. 799, we impose an interest rate of 6% p.a. from the finality of this
Decision until the obligation is fully paid, the interim period being deemed equivalent to a forbearance of credit.
Lastly, to prevent future litigation in the enforcement of the award, we clarify that the respondents are not personally responsible for
the debts of their predecessor. The respondents extent of liability to Planters Bank is limited to the value of the estate which they
inherited from Florentina Lopez.53 In our jurisdiction, "it is the estate or mass of the property left by the decedent, instead of the
heirs directly, that becomes vested and charged with his rights and obligations which survive after his death."54To rule otherwise
would unduly deprive the respondents of their properties.
WHEREFORE, premises considered, the assailed amended decision dated July 30, 2007 and resolution dated February 5, 2009 of
the Court of Appeals are hereby REVERSED. Respondents Joseph Wilfred, Joseph Gilbert and Marlyn, all surnamed Joven, are
ordered to pay THREE MILLION FIVE HUNDRED THOUSAND PESOS (1 3,500,000.00) with 12% monetary interest per annum
commencing on June 22, 1984 until fully paid; 12% compensatory interest per annum commencing on June 22, 1984 until June 30,
2013; 6% compensatory interest per annum commencing on July 1 2013 until the finality of this Decision; and 6% interest rate per
annum commencing from the finality of this Decision until fully paid. The proceeds of the foreclosed mortgaged property in the
auction sale shall be deducted from the principal of the loan from the time payment was made to Planters Bank and the remainder
shall be the new principal from which the computation shall thereafter be made. Furthermore, the respondents' liability is limited to
the value of the inheritance they received from the deceased Florentina Lopez.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.*
BIENVENIDO L. REYES**
Associate Justice
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I CAT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson s Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court s
Division.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
*
Designated as Acting Member in lieu of Associate Justice Jose P. Perez, per Special Order No. 1567 dated October 11
2013.
**
Designated as Acting Member in lieu of Associate Justice Mariano C. del Castillo, per Special Order No. 1564 dated
October 11, 2013.
1
Dated February 24, 2009 and filed under Rule 45 of the Rules of Court; rollo, pp. 3-30.
2
Id. at 34-65; penned by Presiding Justice Ruben T. Reyes, and concurred in by Associate Justices Juan Q. Enriquez, Jr.
and Vicente S. E. Veloso.
3
Id. at 67-69; penned by Associate Justice Arturo G. Tayag, and concurred in by Associate Justices Martin S. Villarama,
Jr. and Noel G. Tijam.
4
Id. at 76-85.
5
Id. at 86-87.
6
Id. at 91-93.
7
Id. at 96-98.
8
RTC rollo, Volume 3, p. 29.
9
Rollo, pp. 99-103.
10
Id. at 94-95.
11
Id. at 39.
12
RTC rollo, Volume 1, pp. 1-11.
13
Id. at 19-27.
14
Rollo, p. 104.
15
Id. at 161-165; penned by Judge Eriberto Rosario, Jr.
16
Id. at 164-165.

17

Id. at 172-173.
Id. at 166-171.
19
Id. at 173.
20
CA rollo, p. 116.
21
Rollo, pp. 175-203.
22
Id. at 202.
23
Rollo, pp. 64-65.
24
Supra note 1.
25
Rollo, pp. 221-225.
26
Id. at 270-282.
27
Cortes v. Valdellon, etc., et al., 162 Phil. 745, 753 (1976).
28
Rollo, p. 260.
29
Id. at 259.
30
Section 2, Rule 52 of the Rules of Court provides:
Section 2. Second motion for reconsideration. No second motion for reconsideration of a judgment or final
resolution by the same party shall be entertained. [italics supplied]
31
Magdalena Estate, Inc. v. Hon. Caluag and Nava, 120 Phil. 338, 342 (1964); and Lee v. Trocino, G.R. No. 164648, June
19, 2009, 590 SCRA 32, 37.
32
CA rollo, Volume 3, pp. 59-60, 67-69.
33
TSN, September 8, 1986, p. 13.
34
TSN, February 2, 1988, pp. 7-14
Q: What about the other documents you showed us?
A: I am familiar with this Progress Report.
Q: Specifically, what document are you referring to? I noted that these are xerox copies, who had that xeroxed,
will you tell the Court?
A: Our policy then at Credit Department is we required (sic) the borrower to submit a copy of progress report to
be prepared by the Engineer.
xxxx
Court: In other words, the Court will assume that the originals are in the possession of the bank. Atty. Cruz: Yes,
Your Honor, we admit.
Atty. Monsanto: Now, you mentioned progress reports. How many progress reports do you have in your
possession?
xxxx
A: Three (3). The first one is the Bill of Materials.
xxxx
Atty. Monsanto: At the time of the submission of these reports where were you connected then? A: I was then the
Head of the Appraisal Department.
xxxx
Q: I see. As Head of the Appraisal DepartmentBy the way, what is the job of the Appraisal Department?
A: Primarily, assistance to account of officers in terms of loan managing and for disposal of assets.
Q: There be any project in progress what do you do as head of the Department of Appraisal?
A: We require the borrower to submit a Progress Report.
Q: That is Standard Operating Procedure?
A: Yes.
Q: How often do you normally require the submission of progress reports?
A: Everytime the client requests for a release.
Q: Before any further release is made by the bank there is a progress report required and it is only upon the
submission of this progress report and upon your satisfaction that you release funds to the client, is that correct?
A: That is right. [emphases ours]
35
RTC rollo, Volume 3, pp. 157-159, 163-172.
36
Article 1169 of the Civil Code provides:
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins. (1100a)
37
Ang v. Court of Appeals, 252 Phil. 292, 303 (1989).
38
RTC rollo, Volume 3, p. 167.
39
Santiago Land Devt. Corp. v. CA, 334 Phil. 741, 747-749 (1997).
40
RULES OF COURT, Section 2(p), Rule 131.
41
Id., Section 14, Rule 13.
42
Central Bank of the Phil. V. Court of Appeals, 223 Phil. 266, 273 (1985).
43
Aliling v. Feliciano, G.R. No. 185829, April 25, 2012, 671 SCRA 186, 199, citing Sociedad Europea de Financiacion SA
v. CA, G.R. No. 75787, January 21, 1991,193 SCRA 105, 114.
44
Article 1308 of the Civil Code provides:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.
45
523 Phil. 362, 367 (2006).
18

46

Imperial v. Jaucian, 471 Phil. 484, 494-495 (2004); and Castro v. Tan, G.R. No. 168940, November 24, 2009, 605 SCRA
231, 237-238.
47
State Investment House, Inc. v. Court of Appeals, G.R. No. 90676, June 19, 1991, 198 SCRA 390, 398.
48
CIVIL CODE, Article 1956.
49
G.R. No. 192986, January 15, 2013.
50
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
51
G.R. No. 189871, August 13, 2013.
52
In Castelo v. CA, 314 Phil. 1, 20 (1995), we explained:
Under Article 2209, the appropriate measure for damages in case of delay in discharging an obligation consisting
of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the
parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a
rate equal to the regular or monetary interest, becomes due and payable. Finally, if no regular interest had been
agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which
is six percent (6%) or, in the case of loans or forbearances of money, twelve percent (12%) per annum. [italics
supplied]
53
Article 1311 of the Civil Code provides:
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent. [emphasis
ours]
54
Desiderio P. Jurado, Comments and Jurisprudence on Obligations and Contracts 2002 ed., p 375.

EN BANC
~G.R. No. 189871
August 13, 2013
DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals (CA) in CA-G.R.
SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioners motion for reconsideration.
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. 0100519-97.
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 P158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was dismissed
from employment for a just or valid cause. All the more, it is clear from the records that complainant was never afforded due
process before he was terminated. As such, we are perforce constrained to grant complainants prayer for the payments of
separation pay in lieu of reinstatement to his former position, considering the strained relationship between the parties, and his
apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:
SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

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

BACKWAGES
Date Dismissed

January 24, 1997

Rate per day

P196.00

Date of Decisions

Aug. 18, 1998

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

P196.00/day x 12.36 mos.

= P62,986.56

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

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20

TO TAL
= P95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are
therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100
(P62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100
(P95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the 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 P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents the
total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the
Labor Arbiter awarded separation pay of P62,986.56 and limited backwages ofP95,933.36, no more recomputation is required to be
made of the said awards. They claimed that after the decision becomes final and executory, the same cannot be altered or
amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of
Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a 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 P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the judgment
award of petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined by the
Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to petitioner in
the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate
interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount ofP11,459.73. The Labor
Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became final
and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are
computed only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus, since
petitioner already receivedP147,560.19, he is only entitled to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated September 27, 2006.
Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23dated January 31, 2007.
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 Arbiters decision, the same
is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner maintains
that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002
Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for
the computation of the backwages and separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter
was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest from the finality of the
decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the October
15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents insist that since
the decision clearly stated that the separation pay and backwages are "computed only up to [the] promulgation of this decision,"
and considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as computed by the Labor
Arbiter in the total amount ofP158,919.92. Respondents added that it was only during the execution proceedings that the petitioner
questioned the award, long after the decision had become final and executory. Respondents contend that to allow the further
recomputation of the backwages to be awarded to petitioner at this point of the proceedings would substantially vary the decision of
the Labor Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),27 wherein
the issue submitted to the Court for resolution was the propriety of the computation of the awards made, and whether this violated
the principle of immutability of judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the
above-cited case that the decision already provided for the computation of the payable separation pay and backwages due and did
not further order the computation of the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
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 recomputed 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.1wphi1
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
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.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ARTURO D. BRION
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

BIENVENIDO L. REYES
Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
C E R T I F I CAT I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
1
Penned by Associate Justice Vicente S. E. Veloso, with Associate Justices Rebecca De Guia-Salvador and Ricardo R.
Rosario, concurring; rollo, pp. 33-48.
2
Id. at 32.
3
Id. at 79-84.
4
Id. at 82-84. (Emphasis supplied.)
5
Id. at 85-93.
6
Resolution dated July 24, 2000, id. at 94-96.
7
Rollo, p. 35.
8
Id. at 35-36.
9
Id. at 36.
10
Id. at 100.
11
Id.
12
Id. at 101.
13
Id. at 97-102.
14
Id. at 37.
15
Id. at 103-108.
16
Id. at 109-113.
17
Id. at 114-117.
18
Id. at 101.
19
Id. at 40.
20
Id. at 65-69.
21
Id. at 70-74.
22
Id. at 60-64.

23

Id. at 58-59.
Id. at 33-48.
25
Id. at 32.
26
Id. at 27.
27
G.R. No. 172149, February 8, 2010, 612 SCRA 10.
28
Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at 21-23.
29
Id. at 25.
30
Id. at 25-26.
31
Id. at 26.
32
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
33
Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at 95-97. (Citations omitted; italics in the original).
34
SECTION 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve percent (12%) per
annum.
35
Rate of interest in the absence of stipulation; Dated June 21, 2013.
36
X305.1 Rate of interest in the absence of stipulation. 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 expressed contract as to such rate of interest, shall
be twelve percent (12%) per annum.
37
The Section is under Q Regulations or Regulations Governing Non-Bank Financial Institutions
Performing Quasi-Banking Functions. It reads:
4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation. The rate of interest for the loan or
forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract
as to such rate of interest, shall 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.
24