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G.R. No.

189871 August 13, 2013


- 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.

- October 15, 1998- the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed from
employment without a valid or just cause. Respondents are found guilty of constructive dismissal. All the more, it is clear
from the records that complainant was never afforded due process before he was terminated.

- Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92.

- February 29, 2000- Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution and filed
a motion for reconsideration, but it was denied.

- August 24, 2000- respondents filed a Petition for Review on Certiorari before the CA and was dismissed. They filed a
Motion for Reconsideration, again it was denied.

- Respondents then sought relief before the Supreme Court and denied the petition finding no reversible error on the part of
the CA.

- May 27, 2002- an Entry of Judgment was later issued certifying that the resolution became final and executory. Case was
referred back to the Labor Arbiter as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that
the said date should be the reckoning point because Nacar did not appeal hence as to him, that decision became final and

- 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.
Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of

- December 2, 2002- a Writ of Execution was issued by the Labor Arbiter ordering the Sheriff to collect from respondents
the total amount of P471,320.31. Respondents filed a motion to quash the writ of execution, it was denied.

- June 30, 2003- Respondents again appealed before the NLRC then issued a Resolution granting the appeal in favor of the
respondents and ordered the recomputation of the judgment award.

- This went on from January 14, 2003- September 23, 2009

- The CA opined that since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already
became final and executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing left to be
done except to enforce the said judgment. Consequently, it can no longer be modified in any respect, except to correct
clerical errors or mistakes.

- The Labor Arbitrator reasoned that the said date should be the reckoning point because Nacar did not appeal hence as to
him, that decision became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.

HELD: The Labor Arbiter is incorrect.

There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins,
or loses but wins on appeal).

(1) Ruling that the employee was illegally dismissed. This is immediately final even if the employer appeals but will be
reversed if employer wins on appeal.
(2) Ruling on the award of backwages and/or separation pay.
For backwages, it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter.
But if the employer appeals, then the end date shall be extended until the day when the appellate courts decision shall
become final. Hence, as a consequence, the liability of the employer, if he loses on appeal, will increase this is just
but a risk that the employer cannot avoid when it continued to seek recourses against the Labor Arbiters decision. This
is also in accordance with Article 279 of the Labor Code.

The issue of award of interest in the form of actual or compensatory damages, the Supreme Court ruled that the old case of
Eastern Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board
Resolution No. 796 which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as follows:
(1) Monetary Obligations ex. Loans: If stipulated in writing:
shall run from date of judicial demand (filing of the case)
rate of interest shall be that amount stipulated
If not stipulated in writing
shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand whichever is
appropriate and subject to the provisions of Article 1169 of the Civil Code)
rate of interest shall be 6% per annum

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

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

If unliquidated, no interest

Except: When later on established with certainty. Interest shall still be 6% per annum demandable from the date of judgment
because such on such date, it is already deemed that the amount of damages is already ascertained.

(3) Compounded Interest

This is applicable to both monetary and non-monetary obligations

6% per annum computed against award of damages (interest) granted by the court. To be computed from the date when
the courts decision becomes final and executory until the award is fully satisfied by the losing party.

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

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

Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate for unpaid
obligations until June 30, 2013; unpaid obligations with respect to said judgments on or after July 1, 2013 shall still
incur the 6% rate.
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796, approved the amendment of Section
2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013,
the pertinent portion of which reads:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be 12% per annum but will now be 6% per annum effective July 1, 2013.
It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the 12% per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of 6% per annum shall be the prevailing rate of interest when applicable.

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or 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:

New guidelines in the award of interest:

1.) When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2.) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3.) When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Application in this case: The interest of 12% per annum of the total monetary awards, computed from May 27, 2002 to
June 30, 2013 and 6% per annum from July 1, 2013 until their full satisfaction, is awarded.