EASTERN SHIPPING LINES V.

CA (1994)

Petitioners: EASTERN SHIPPING LINES, INC

Respondents: HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,

INC.

FACTS:

Two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel SS
EASTERN COMET owned by Eastern. The shipment was insured under Mercantiles Marine
Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila, it was discharged unto the custody of Metro Port
Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was
unknown to Mercantile.

Allied Brokerage Corporation received the shipment from Metro Port, one drum opened and
without seal

Allied delivered the shipment to the consignees warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents was adulterated/fake.

Mercantile 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 Eastern, Metro Port, and
Allied (defendants). Claims were presented against defendants who failed and refused to pay
the same.

As a consequence of the losses sustained, Mercantile was compelled to pay the consignee
P19,032.95 under the marine insurance policy, so that it became subrogated to all the rights of
action of said consignee against defendants.

The CFI held: these losses/damages occurred before the shipment reached the consignee
while under the successive custodies of defendants. Thus, they were ordered to pay
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 CA affirmed, thus this appeal by Eastern, arguing: The grant of interest on the claim of
[Mercantile] should commencefrom the date of the decision of the trial court and only at
the rate of six percent per annum, [Mercantiles] claim being indisputably unliquidated.

ISSUES:

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
o From the date the decision appealed from is rendered. Intertwined with:
Whether the applicable rate of interest is 12% or 6%
HELD: 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 the judgment.

o 6%. 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).
o 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).
o NOTE: THE SUPREME COURT CITED THIS CASES IN THE FULL TEXT.
o 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 of money, goods or credits, as well as to
judgments involving such loan or forbearance of money, goods or credits, and
that the 6% interest under the Civil Code governs when the transaction involves
the payment of indemnities in the concept of damage arising from the breach or
a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per
annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
o The second group, did not alter the pronounced rule on the application of
the 6% or 12% interest per annum, depending on whether or not the
amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the first group
which remained consistent in holding that the running of the legal interest should
be from the time of the filing of the complaint until fully paid, the second group
varied on the commencement of the running of the legal interest. Malayan
held that the amount awarded should bear legal interest from the date of the
decision of the court a quo, explaining that if the suit were for damages,
unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, then, interest should be from the date of
the decision. American Express International v. IAC, introduced a different time
frame for reckoning the 6% interest by ordering it to be computed from the
finality of (the) decision until paid. The Nakpil and Sons case ruled that 12%
interest per annum should be imposed from the finality of the decision until the
judgment amount is paid. The ostensible discord is not difficult to explain. The
factual circumstances may have called for different applications, guided by the
rule that the courts are vested with discretion, depending on the equities of each
case, on the award of interest. Nonetheless, it may not be unwise, by way of
 clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
o 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.
o 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:
o A. 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.
o B. 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.
o C. 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 A or B, 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.
RIVERA V SPOUSES CHUA

GR NO. 184458

FACTS:

The parties were friends and kumpadres for a long time. Rivera obtained a loan from the
Spouses Chua evidenced by a promisorry note. It is agreed and understood that failure on
Rivera's part to pay the amount P120,000.00 on December 31,1995 shall result to the payment
of the sum equivalent to 5% interest monthly from the date of default until the entire obligation is
fully paid. It is written on the promisorry note.

Three years from the date of pay,ent stipulated in the promisorry note, Rivera issued and
delivered to Spouses Chua two checks drawn against his account at Philippine Commercial
International Bank. But upon presentment for payment, the two checks were dishonored for the
reason "account closed" as of May 31, 1999, the amount due the Spouses was pegged at
P366,000.00 covering the principal amount of P120,000.00 plus 5% interest per month from
January 1, 1996 to May 31, 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to
no avail. Due to Rivera's unjustified refusal to pay, the Spouses Chua were constrained to file a
suit before the MeTC.

Metc and the RTC of Manila ruled in favor of the Spouses Chua. Rivera was ordered to
pay P120,000.00 plus stipulated interest at the rate of 5% per month from January 1, 1996 to
May 31, 1999 and 12% per annum from June 11, 1999. CA affirmed the decision with a
modification of lowering the stipulated interest to 12% per annum. It was then appealed to the
SC.

ISSUE:

Whether or not thestipulated interest isunconscionable and should really be lowered.

HELD:

Yes, the stipulated interest is unconscionable and and should really be lowered. The SC
held that as observed by Rivera, the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney's fees is indeed highly unquitous and unreasonable. If
Stipulated interest rates are illegal and unconscionable, the court is allowed to temper interest
rates when necessary. Since the interest rate agreed upon is void, the parties are considered to
have no stipulation regarding the interest rate thus, the interest rate should be 12% per annum
computed from the date of judicial or extrajudicial demand. However, the 12% per annum rateis
only applicable until June 30, 2013 before the advent and effectivity of BSP Circular No. 799,
reducing the rate of legal interest to 6% per annum.
Nacar v Gallery frames 703 SCRA 439

FACTS:

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter found Gallery Frames guilty of illegal dismissal hence the
Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court . The Supreme Court affirmed the
decision of the Labor Arbiter and the decision became final on May 27, 2002. After the finality of
the SC decision, Nacar filed a motion before the LA for recomputation as he alleged that his
backwages should be computed from the time of his illegal dismissal (January 24, 1997) until
the finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as he
ruled that the reckoning point of the computation should only be from the time Nacar was
illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA
reasoned that the said date should be the reckoning point because Nacar did not appeal hence
as to him, that decision became final and executory.

ISSUE: whether the 12% interest rate should apply.

HELD: No. Anent the issue of award of interest in the form of actual or compensatory damages,
the Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified
by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796
which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are
now as follows:

1. Monetary Obligations ex. Loans:

a. If stipulated in writing:

a.1. shall run from date of judicial demand (filing of the case)

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing

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

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

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

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

b. If unliquidated, no interest Except: When later on established with certainty. Interest shall still
be 6% per annum demandable from the date of judgment because such on such date, it is
already deemed that the amount of damages is already ascertained.

3. 3Compounded 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.