Dario Nacar vs Gallery Frames

March 12, 2014

703 SCRA 439 – Civil Law – Torts and Damages – Actual and Compensatory Damages – Legal Rate of Interest is now 6%
Labor Law – Labor Relations – Illegal Dismissal – Computation of Monetary Benefits

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged that his backwages should be computed from the time of his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as he ruled that the reckoning point of the computation should only be from the time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said date should be the reckoning point because Nacar did not appeal hence as to him, that decision became final and executory.

ISSUE: Whether or not the Labor Arbiter is correct.

HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins, or loses but wins on appeal). The first part is the ruling that the employee was illegally dismissed. This is immediately final even if the employer appeals – but will be reversed if employer wins on appeal. The second part is the ruling on the award of backwages and/or separation pay. For backwages, it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals, then the end date shall be extended until the day when the appellate court’s 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 Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.

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

1. Monetary Obligations ex. Loans:

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. 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 court’s 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.


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