Digests in Credit Transactions

5/21/2018 Digests in Credit Transactions

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CU UNJIENG E HIJOS vs. THE MABALACAT SUGAR CO.

(STREET,J.)

This action was instituted in the Court of First Instance of Pampanga by CuUnjieng e Hijos, for the purpose of recovering from the Mabalacat Sugar

Company an indebtedness amounting to more than P163,000, with

interest, and to foreclose a mortgage given by the debtor to secure the

same, as well as to recover stipulated attorney's fee and the sum of

P1,206, paid by the plaintiff for insurance upon the mortgaged property,

with incidental relief. In the complaint Siuliong & Co., Inc., was joined as

defendant, as a surety of the Mabalacat Sugar Company, and as having a

third mortgage on the mortgaged property. The Philippine National Bank

was also joined by reason of its interest as second mortgagee of the land

covered by the mortgage to the plaintiff.

The mortgage executed by the Mabalacat Sugar Company contains, in

paragraph 5, a provision to the effect that non-compliance on the part of

the mortgage debtor with any of the obligations assumed in virtue of this

contract will cause the entire debt to become due and give occasion for

the foreclosure of the mortgage. The debtor party failed to comply with

the obligation, imposed upon it in the mortgage, to pay the mortgage debt

in the stipulated installments at the time specified in the contract. It results

that the creditor was justified in treating the entire mortgage debt as

having been accelerated by such failure of the debtor in paying theinstallments.

It appears, however, that on or about October 20, 1928, the mortgage

creditor, Cu Unjieng e Hijos, agreed to extend the t ime for payment of the

mortgage indebtedness until June 30, 1929, with certain interim payments

to be made upon specified dates prior to the contemplated final

liquidation of the whole indebtedness. But the debtor party failed to make

the interim payments due on February 25, 1929, March 25, 1929, and April

25, 1929, and failed altogether to pay the balance due, according to the

terms of this extension, on June 30, 1929. Notwithstanding the failure of

the debtor to comply with the terms of this extension, it is insisted for the

appellant that this agreement for the extension of the time of payment

had the effect of abrogating the stipulation of the original contract withrespect to the acceleration of the maturity of the debt by non-compliance

with the terms of the mortgage. As the trial court pointed out, this

contention is untenable. The agreement to extend the time of payment

was voluntary and without consideration so far as the creditor is

concerned; and the failure of the debtor to comply with the terms of the

extension justified the creditor in treating it as of no effect. The first error

is therefore without merit.

The second error is directed to the propriety of the interest charges made

by the plaintiff in estimating the amount of the indebtedness. In thisconnection we note that, under the second clause of the mortgage,

interest should be calculated upon the indebtedness at the rate of 12 per

cent per annum. In the same clause, but in a separate paragraph, there is

another provision with respect to the payment of interest which reads as

follows: "Interest, to be computed upon the still unpaid capital of the loan,

shall be paid monthly, at the end of each month."

It is well settled that, under article 1109 of the Civil Code, as well as under

section 5 of the Usury Law (Act No. 2655), the parties may stipulate that

interest shall be compounded; and rests for the computation of compoundinterest can certainly be made monthly, as well as quarterly, semiannually,

or annually. But in the absence of express stipulation for the accumulation

of compound interest, no interest can be collected upon interest until the

debt is judicially claimed, and then the rate at which interest upon accrued

interest must be computed is fixed at 6 per cent per annum.

In the present case, however, the language which we have quoted above

does not justify the charging of interest upon interest, so far as interest on


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the capital is concerned. The provision quoted merely requires the debtor

to pay interest monthly at the end of each month, such interest to be

computed upon the capital of the loan not already paid. Clearly this

provision does not justify the charging of compound interest upon the

interest accruing upon the capital monthly. It is true that in subsections (a),(b) and (c) of article IV of the mortgage, it is stipulated that the interest can

be thus computed upon sums which the creditor would have to pay out (a)

to maintain insurance upon the mortgaged property, (b) to pay the land

tax upon the same property, and (c) upon disbursements that might be

made by the mortgagee to maintain the property in good condition. But

the chief thing is that interest cannot be thus accumulated on unpaid

interest accruing upon the capital of the debt.

The trial court was of the opinion that interest could be so charged,

because of the Exhibit 1 of the Mabalacat Sugar Company, which the courtconsidered as an interpretation by the parties to the contract and a

recognition by the debtor of the propriety of compounding the interest

earned by the capital. But the exhibit referred to is merely a receipt

showing that the sum of P256.28 was, on March 19, 1928, paid by the

debtor to the plaintiff as interest upon interest. But where interest is

improperly charged, at an unlawful rate, the mere voluntary payment of it

to the creditor by the debtor is not binding. Such payment, in the case

before us, was usurious, being in excess of 12 per cent which is allowed to

be charged, under section 2 of the Usury Law, when a debt is secured by

mortgage upon real property. The Exhibit 1 therefore adds no support tothe contention of the plaintiff that interest upon interest can be

accumulated in the manner adopter by the creditor in this case. The point

here ruled is in exact conformity with the decision of this court in Bachrach

Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held

that interest cannot be allowed in the absence of stipulation, or in default

thereof, except when the debt is judicially claimed; and when the debt is

judicially claimed, the interest upon the interest can only be computed at

the rate of 6 per cent per annum.

It results that the appellant's second assignment of error is well taken, and

the compound interest must be eliminated from the judgment. With

respect to the amount improperly charged, we accept the estimate

submitted by the president and manager of the Mabalacat SugarCompany, who says that the amount improperly included in the

computation made by the plaintiff's bookkeeper is P879.84, in addition to

the amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar

Company. But the plaintiff creditor had the right to charge interest, in the

manner adopted by it, upon insurance premiums which it had paid out;

and if any discrepancy of importance is discoverable by the plaintiff in the

result here reached, it will be at liberty to submit a revised computation in

this court, upon motion for reconsideration, wherein interest shall be

computed in accordance with this opinion, that is to say, that no

accumulation of interest will be permitted at monthly intervals, as regardsthe capital of the debt, but such unpaid interest shall draw interest at the

rate of 6 per cent from the date of the institution of the action.

From what has been stated, it follows that the appealed judgment must be

modified by deducting the sum of P1,136.12 from the principal debt, so

that the amount of said indebtedness shall be P162,398.61, with interest

at 12 per cent per annum, from May 1, 1929. In other respects the

judgment will be affirmed, and it is so ordered, with cost against the

appellant.

EASTERN SHIPPING LINES, INC. vs. CA & MERCANTILE INSURANCE

COMPANY, INC.

(VITUG,J.)

This is an action against defendants shipping company, arrastre operator

and broker-forwarder for damages sustained by a shipment while in


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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 LadingNo. 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 andwithout 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.

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 whofailed and refused to pay the same.

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.

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 theshipment 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.

A judgment was rendered ordering defendants to pay p laintiff, jointly and

severally:

The amount of P19,032.95, with the present legal interest of 12%per

annumfrom 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 ManagementContract); P3,000.00 as attorney's fees; and costs.

The Court of Appeals affirmed in totothe judgment of the court

a quo.

Held:


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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. When the goodsshipped 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.

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 quoand 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 hereinpetitioner 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, decidedon 15 May 1969, involved a suit for recovery of moneyarising 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 with legal 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 Riveravs.Perez,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

then interest should be from the date of the decision."

The case of Reformina vs.Tomol,rendered on 11 October 1985, was for

"Recovery of Damages for Injury to Person and Loss of Property."

The trial court rendered judgment against the defendants and third party

plaintiffs, ordering the award of actual damages with legal interest fromthe filing of the complaint until paid.

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. In their petition for review

on certiorari, the petitioners contended that Central Bank Circular

No. 416 should have, instead, been applied. This Court said:


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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.

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.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,

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.Tomolcase, this

Courtmodified 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, 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. 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 a solidary indemnity in favor of the Philippine Bar

Association of P5,000,000 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 P100,000 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.

A motion for reconsideration was filed by United Construction, contending

that "the interest of 12%per annumimposed on the total amount of the

monetary award was in contravention of law." The Court 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 ofrefer to judgments involving loans or forbearance of any money,

goods or credits. It is true that in the instant case, there is neither

a loan nor 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.


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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, aspart of the judgment for

damages. Clearly, they are not applicable to the instant case.

The subsequent case ofAmerican Express International, Inc.,

vs.Intermediate Appellate Courtwas a petition for review

on certiorarifrom 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, formoral damages by the trial court, later sustained by the IAC, to be

inconceivably large. The Court12

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 6% interest thereon computed from the

finality of this decision until paid.

Reformina came into fore again in the 21 February 1989 case of Florendo

v.Ruizwhich arose from a breach of employment contract. For having

been illegally dismissed, the petitioner was awarded by the trial courtmoral 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 defendant-appellant

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

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 annumfrom the

date of the filing of the complaint. Ascribing grave abuse of discretion on

the part of the trial judge, a petition for certiorariassailed 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 notapply to actions based on a breach of employment contract like

the case at bar.

The Court reiterated that the 6% interestper 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,decided on 08 May 1992,

involved the expropriation of certain parcels of land. After conducting ahearing 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 interestper annum under

the Civil Code, the Courtdeclared:

The transaction involved is clearly not a loan or forbearance of

money, goods or credits but expropriation of certain parcels of


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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),andAmerican Express International v. Intermediate

Appellate Court(1988).

In the "first group", the basic issue focuses on the application of either the6% (under the Civil Code) or 12% (under the Central Bank Circular)

interestper annum. It is easily discernible in these cases that there has

been a consistent holding that the Central Bank Circular imposing the 12%

interestper annumapplies only to loans or forbearanceof 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% interestper 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% interestper 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 fordamages, '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% interestper annumshould be

imposed from the finality of the decision until the judgment amount is

paid.

By way of clarification and reconciliation, to suggest the following rules ofthumb for future guidance:

I. When an obligation, regardless of its source, i.e., law,

contracts, quasi-contracts, delicts or quasi-delictsis 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.


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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 annumto be computed from

default, i.e., from judicial or extrajudicial demand under and

subject to the provisions of Article 1169of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of

money, is breached, an interest on the amount of damagesawarded 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 ofdamages 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 annumfrom 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.

DARIO NACAR vs. GALLERY FRAMES & FELIPE BORDEY, JR.

(PERALTA, J)

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.

On October 15, 1998, the Labor Arbiter rendered a Decision 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:

WHEREFORE, premises considered, judgment is hereby renderedfinding respondents guilty of constructive dismissal and are

therefore,

ordered:

1. To pay jointly and severally the complainant the amount of

P62,986.56 representing his separation pay;

2. To pay jointly and severally the complainant the amount of


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P95,933.36 representing his backwages; and

3. All other claims are hereby dismissed for lack of merit.

Respondents appealed to the NLRC, but it was dismissed for lack of

merit in the Resolution dated February 29, 2000. Accordingly, the NLRC

sustained the decision of the Labor Arbiter. Respondents filed a motion for

reconsideration, but it was denied.

Dissatisfied, respondents filed a Petition f or 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.

Respondents then sought relief before the Supreme Court. Finding noreversible error on the part of the CA, this Court denied the petition in the

Resolution dated April 17, 2002.

An Entry of Judgment was later issued certifying that the resolution

became final and executory on May 27, 2002. The case was, thereafter,

referred back to the Labor Arbiter. A pre-execution conference was

consequently scheduled, but respondents failed to appear.

On November 5, 2002, petitioner filed a Motion for Correct Computation,

praying that his backwages be computed from the date of his dismissal onJanuary 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 P471,320.31.

On 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 Writ of Execution,

arguing, among other things, that since the Labor Arbiter awarded

separation pay of P62,986.56 and limited backwages of P95,933.36, 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. On January 13, 2003, the Labor

Arbiter issued an Order denying the motion. Thus, an Alias Writ of

Execution was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on J une 30, 2003

issued a Resolution granting the appeal in favor of the respondents and

ordered the recomputation of the judgment award.

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.

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.

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.

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 andexecutory. However, the Labor Arbiter reasoned that since the decision

states that the separationpay 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 received P147,560.19,

he is only entitled to the balance of P11,459.73.

NLRC denied the appeal as well as the MR.


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CA denied the petitionThe CA opined that s ince 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. CA denied the

MR.

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 payshould 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.

Held:

The instant case is similar to the case of Session Delights Ice Cream

and Fast Foods v. Court of Appeals (Sixth Division), wherein the issue

submitted to the Court for resolution was the propriety of thecomputation 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:

Focusing on the core illegal dismissal portion of the original labor

arbiter's decision, the implementing labor arbiter ordered the

award re-computed; he apparently read the figures originally

ordered to be paid to be the computation due had the case been

terminated and implemented at the labor arbiter's level. Thus, the

labor arbiter re-computed the award to include the separation

pay and the backwages due up to the finality of the CA decision

that fully terminated the case on the merits. Unfortunately, the

labor arbiter's approved computation went beyond the finality of

the CA decision (July 29, 2003) and included as well the payment

for awards the final CA decision had deleted - specifically, the

proportionate 13th month pay and the indemnity awards. Hence,

the CA issued the decision now questioned in the present

petition.

We see no error in the CA decision confirming that a

recomputation 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.

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. A recomputation (or an

original computation, if no previous computation has been made) is a part

of the lawspecifically, Article 279 of the Labor Code and the established

jurisprudence on this provisionthat is read into the decision. By the


11/18

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.

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 separationpay, the final decision effectively declares that the employment

relationship ended so that separation pay and backwages are to be

computed up to that point.

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

annumas reflected in the case of Eastern Shipping Lines40 and

Subsection X305.1 of the Manual of Regulations for Banks and Sections4305Q.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.

To recapitulate and for future guidance, the guidelines laid down

in the case of Eastern Shipping Linesare 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:

1. When the obligation is breached, and it consists in the paymentof 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

Civil Code.

2. When an obligation, not constituting a loan or forbearance ofmoney, 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


12/18

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.

EMERITO M. RAMOS vs. CENTRAL BANK OF THE PHILIPPINES

(TEEHANKEE,J.)

Pending final determination is respondent Central Bank's motion for

reconsideration dated December 28, 1982 of the Court's Resolution of

October 19, 1982 which ruled "applying the Tapiaruling as reaffirmed by

the Court in the subsequent cases cited above OBM vs. Vicente Cordero,

113 SCRA 303 (March 30, 1982), per Escolin, J.; OBM vs. Julian Cordero,

113 SCRA 778 (April 27, 1982), per Barredo, J.) that the bank is not liable

for interest on the Central Bank loans and advances during the period of its

closure from August 21 1968 to January 8, 1981.

In the Tapiaruling (105 SCRA 49, June 11, 1981), the Court held that "the

obligation to pay interest on the deposit ceases the moment the operation

of the bank is completely suspended by the duly constituted authority, the

Central Bank," and that "for the guidance of those who might be

concerned, and so that unnecessary litigations may be avoided from

further clogging the dockets of the courts, that in the light of the

considerations expounded in the above opinion, the same formula that

exempts petitioner from the payment of interest to its depositors during

the whole period of factual stoppage of its operations by orders of the

Central Bank, modified in effect by the decision as well as the approval of a

formula of rehabilitation by this Court, should be, as a matter of

consistency, applicable or followed in respect to all other obligations of

petitioner which could not be paid during the period of its actual complete

closure."

Respondents have failed to adduce any cogent argument to persuade the

Court to reconsider its Resolution at bar that the Tapiaruling as reaffirmed

by the aforecited cases is fully applicable to the non-payment of interest,during the period of the bank's forcible closure, on loans and advances

made by respondent Central Bank. Respondent Central Bank itself when it

was then managing the Overseas Bank of Manila (now Commercial Bank of

Manila) under a holding trust agreement, held the same position in

Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein it argued

in its brief that "(I)n a suit against the receiver of a national bank for money

loaned to the Bank while it was a going concern, it was error to permit

plaintiff to recover interest on the loan after the bank's suspension" (citing

Zollman Banks and Banking). In Pablo R. Roman et al vs. Central Bank(CA-

G.R. No. 49144-R, October 18, 1973, per then Court of Appeals JusticeHermogenes Concepcion, Jr.), the appellate court by final judgment

affirmed the trial court's judgment ordering appellant Central Bank to

condone all interests on Central Bank loans to the Republic Bank, as well as

penalties imposed on it which would be tantamount "to force the Republic

Bank to liquidate as an insolvent." It should be further noted that the

respondent Central Bank when called upon to deal with commercial banks

and extend to them emergency loans and advances, deals with them not

as an ordinary creditor engaged in business, but as the ultimate monetary


13/18

authority of government charged with the supervision and preservation of

the banking system.

A significant development of the case also is set forth in the manifestation

dated October 19, 1984 of Government Corporate Counsel and general

counsel of the COMBANK Manuel M. Lazaro confirming inter alia that

"(T)he Government Service Insurance System (GSIS) has acquired

ownership of 99.93% of the outstanding capital stock of COMBANK," and

urging resolution at the earliest time possible of the sole issue raised in

respondent Central Bank's motion for reconsideration of the Resolution of

October 19, 1982 that "applying the Tapiaruling as reaffirmed by the Court

in subsequent cases, COMBANK is not liable for interest on CB loans and

advances during the period of its closure from August 2, 1968 to January 8,

1981 " (Record, Vol. V, p. 2261). In his earlier petition for early resolution,

Government Corporate Counsel Manuel M. Lazaro had likewise urged that

"(T)he raison d' etre of the Honorable Court's Resolution of October 19,

1982 is but a re- affirmation of the ruling laid down and firmly established

in previous decisions that have long become final, notably OBM vs. Tapia,

105 SCRA 49 (June 11, 1981), OBM vs. Vicente Cordero and Court of

Appeals, 113 SCRA 303 (Mar. 30, 1982), and OBM vs. Court of Appeals and

Julian R. Cordero, 113 SCRA 778 (April 27, 1982)" (idem, p. 2242).

Government Corporate Counsel Lazaro in his aforecited manifestation

removes any and all doubts as to the propriety of the Court having

rendered its Resolution of October 19, 1982 pursuant to the bank's motion

for a clarificatory ruling in the present case made pursuant to the expressagreement between the bank and the respondent Central Bank then under

Governor Jaime Laya. As stated in the Resolution itself, "the bank's letter

of July 1, 1981 invoking the Tapiaruling was precisely the subject of the

Central Bank's reply of November 12, 1981 above quoted, agreeing anew

that the Central Bank and the Combank seek a clarificatory ruling from the

Supreme Court on the applicability of the Tapiaruling to the case at bar

with both parties ultimately agreeing to 'abide by any clarificatory ruling

which the Supreme Court may render on the matter" (Record, Vol. IV, pp.

1993-1994). The COMBANK in its said manifestation makes of record that

it has likewise entered into an agreement with its sister government

banking institution, the Philippine National Bank, that "both banks have

agreed to abide by the final resolution of this Honorable Court on the CB's

pending Motion for Reconsideration," and that "COMBANK is represented

in the above-captioned case by its General Counsel, the Government

Corporate Counsel who is also the legal counsel for the PNB and whose

services were recently retained by CB in connection with the controversy

involving Banco Filipino and Governor Jose B. Fernandez, Jr." This certainly

makes moot any previous doubts raised during the oral argument that

then Central Bank Governor Jaime Laya may not have had the authority to

enter into such agreement.

The Court's Resolution of October 19, 1982 manifestly redounds to the

benefit of another government institution, the GSIS, which has acquired

99.93% of the outstanding capital stock of the COMBANK and to the

preservation of the banking system. It is time to write finis to this case

which had its beginnings long ago when the original judgment of October

4, 1971 was rendered against the Central Bank, as succinctly stated by the

now Chief Justice in his "[concurrence] in the result primarily on the

ground that respondent's arbitrary and improvident exercise of i ts asserted

power in the premises is violative of due process" (Ramos vs. Central Bank,

41 SCRA 565).

MR Denied.

Separate Opinions

AQUINO,J., dissenting:

The Central Bank, through the Solicitor General, has presented sufficient

reasons to justify the setting aside of the resolution of October 19, 1982,

waiving the interest of 47 million pesos due from the Overseas Bank of

Manila.


14/18

This Court HAS NO JURISDICTION in L-29352 to entertain the motion of

Atty. Pelaez to pass upon the interest on the advances of the Central Bank

to the Overseas Bank. L-29352 should have been ARCHIVED a long time

ago. It is a closed case. Atty. Pelaez should have filed a new case regarding

the interest.

Hence, this Court has NO JURISDICTION to issue the instant resolution.

MELENCIO-HERRERA,J., dissenting:

I vote to grant reconsideration of the Court's Resolution of October 19,

1982.

I agree with the Solicitor General that loans and advances made by the

Central Bank to the then Overseas Bank of Manila OBM can not be treated

in the same manner as deposits made by ordinary depositors.

The Tapiaruling, to my mind, is doctrinal only insofar as it holds that

payment of interest on deposits ceases the moment the operation of the

bank is completely suspended by the Central Bank, but not when it applies

said ruling to interest on loans and advances made by the Central Bank,

that point not having been in issue since the Central Bank was not a party

therein. As a matter of fact, the paragraph extending its application "to all

other obligations of OBM which could not be paid during the period of its

complete closure" (p. 62) is prefaced by the term " parenthetically.

Moreover, interest payment on the loans and advances "made by the

Central Bank was the subject of explicit agreement between the parties at

a time when the OBM had already closed, the rehabilitation plan already

agreed upon and, in fact, was one of the terms and conditions for theresumption of banking operations of OBM (now COMBANK). Significantly,

too, as brought out during the hearing, held on October 23, 1984, the

interest due has been determined and the moneys therefor held in escrow.

PLANA,J., dissenting:

In G.R. No. L-29352, the issue was whether the Central Bank acted with

grave abuse of discretion in ordering the closure in 1968 of the Overseas

Bank of Manila OBM By a closely divided vote, the Court said Yes. (41 SCRA

565.)

G.R. No. L-49353 (Overseas Bank of Manila vs. Court of Appeals and

Tony Tapia, etc.) was an entirely different case. The issue there was

whether OBM, during the actual stoppage of its operations by order of the

Central Bank, was liable to pay interest on deposits therein. The Supreme

Court (Second Division) held that "it should be deemed read into every

contract of deposit with a bank that the obligation to pay interest on the

deposit ceases the moment the operation of the bank is completely

suspended by the duly constituted authority, the Central Bank." (105 SCRA

49.) Going beyond the narrow issue raised by the parties, the Court added-

Parenthetically, We may add for the guidance of those who might be










closure. " (Ibid., at 62.)

Wanting to adopt practical solutions for the OBM problems, the Central

Bank and OBM submitted a Rehabilitation Program which, among others,

stipulated the payment by OBM of 6% interest per annum on itsobligations to the Central Bank. (These were the CB loans and advances to

OBM before the Central Bank closure of OBM, which were used by the

latter to meet its liquidity problems.) The Rehabilitation Program was

approved by the Supreme Court in its Resolution dated October 23,1974.

Unfortunately, the Rehabilitation Program did not succeed. And so, the

Central Bank called for bidders to recapitalize OBM It was at this point that

the Investment and Underwriting Corporation of the Philippines (IUCP)

acquired controlling interest in OBM IUCP specifically agreed to pay the 6%


15/18

interest on the aforestated liabilities to the Central Bank. (These voluntary

assumption of contractual liability was subsequently modified, but said

modification was later withdrawn upon agreement of the Central Bank and

IUCP.

In 1981, OBM reopened business under its new corporate name,

Commercial Bank of Manila (COMBANK). On April 13, 1981, COMBANK

paid Central Bank partial interests from August 1, 1968 to January 7, 1981

on the P63 M advances of the Central Bank to OBM (Annexes "C" and "D"

of Motion for Clarificatory Ruling dated July 29, 1982.) However, it refused

further payment of interest when the Supreme Court rendered its decision

in OBM vs. CA and Tony Tapia, supra, promulgated on June 11, 1981,

which held that OBM was not liable for interest on deposits during the

time of its actual closure. COMBANK claimed coverage by the said decision,

as against the contrary position of the Central Bank.

To solve the impasse, COMBANK and the Central Bank agreed to abide by

any clarificatory ruling the Supreme Court may render on the matter.

As noted before, Ramos vs. Central Bank was decided by this Court way

back on October 4, 1971 on the issue of the validity of the OBM closure.

The case did not involve any question as to the liability of OBM for interest

on deposits or any other obligation. Surprisingly, however, on February 17,

1982 more than 10 years after the entry of judgment in Ramos vs.

Central Bank COMBANK filed a motion to intervene in said case as well

as a motion praying for a clarificatory ruling on the liability of OBM to pay

interest on Central Bank loans and advances.

In a Minute Resolution dated October 19, 1982, this Court ruled that OBMis not liable to pay interest on Central Bank loans and advances during the

period of its closure. The motion of the Central Bank under consideration

seeks a reconsideration of that ruling.

With all due respect, I dissent from the main resolution for the following

reasons:

1. As noted above, Ramos vs. CB was limited to the issue of the legality of

the CB order stopping the operations of OBM It did not involve any

question as to the liability of OBM to pay interest on deposits or other

obligations. The COMBANK motion for clarification regarding OBM liability

for interest payment on CB loans and advances was entirely foreign to the

case, quite apart from the fact that the said motion was filed on February

17, 1982, i.e., long after the entry of judgment in Ramos vs. CB in 1971,

and was not at all related to the execution of the judgment therein. I

therefore share the view of Mr. Justice Aquino that this Court has no

jurisdiction to resolve in G.R. No. L-29352 the issue of interest liability of

COMBANK to the Central Bank, for which reason the Court's resolution

dated October 19, 1982 should be reconsidered and set aside.

2. However, brushing aside the issue of jurisdiction, there are cogent

reasons why OBM (now COMBANK) should be held liable for the payment

of interests on CB loans and advances.

(a) The loans and advances in question were granted by the Central Bank

to OBM before the latter's closure in 1968 to enable it to meet its

obligations to its depositors whose money (deposits) it had been able to

use in the generation of income.

(b) For the period during which OBM stopped banking operations, it

collected interests on loans granted by it to its clients. (Actually, the

Central Bank closure order was limited only to normal banking operations;

it did not prohibit the collection of OBM receivables, including interests

due.) If OBM thus collected interests on loans granted by it, why should it

not pay interest on loans and advances given to it by the Central Bank to

meet its liquidity problems? Is it not enough that OBM has already been

exempted from the payment of interests on bank deposits?

(c) Money does not come gratuitously to the Central Bank. It has cost. Thisis now of common knowledge because the JOBO bills and the high

interests rates they carry are familiar to all. But even before the advent of

JOBO bills, the Central Bank was borrowing money locally and/or from

external sources and paying interests on borrowed funds. By all relevant

standards, it is only fair and proper that the Central Bank should be

allowed to recover its investment and the cost thereof.

(d) I do not think that the liability or non-liability of the OBM (COMBANK)

for interest payment on CB loans and advances would either prejudice or


16/18

benefit the GSIS, the government instrumentality which owns 99.93% of

the outstanding capital stock of COMBANK. When the GSIS bought the

controlling interest in COMBANK, the vendor (IUCP/Herdis Group) together

with the Emerito Ramos Group placed in escrow with the INTERBANK the

amount of P 47.2 million to answer for the interest liability of COMBANK in

case the Supreme Court rules that the latter is liable therefor. On the other

hand, however, should the Supreme Court decide that COMBANK is not

liable, the amount held in escrow would be returned to the IUCP/Herdis

Group and the Emerito Ramos Group. It is therefore clear that neither the

GSIS nor COMBANK will be affected, one way or the other, by any ruling of

the Supreme Court on the issue at bar. But certainly, the Central Bank and

the Philippine Government stand to lose some P 47 million in interests

shouldthe Supreme Court hold that COMBANK is not liable to pay interest

on CB pre-1968 loans and advances from which OBM has unquestionably

benefited.

Separate Opinions

AQUINO,J., dissenting:

The Central Bank, through the Solicitor General, has presented sufficient

reasons to justify the setting aside of the resolution of October 19, 1982,

waiving the interest of 47 million pesos due from the Overseas Bank of

Manila.

This Court HAS NO JURISDICTION in L-29352 to entertain the motion of

Atty. Pelaez to pass upon the interest on the advances of the Central Bank

to the Overseas Bank. L-29352 should have been ARCHIVED a long timeago. It is a closed case. Atty. Pelaez should have filed a new case regarding

the interest.

Hence, this Court has NO JURISDICTION to issue the instant resolution.

MELENCIO-HERRERA,J., dissenting:

I vote to grant reconsideration of the Court's Resolution of October 19,

1982.

I agree with the Solicitor General that loans and advances made by the

Central Bank to the then Overseas Bank of Manila OBM can not be treated

in the same manner as deposits made by ordinary depositors.

The Tapiaruling, to my mind, is doctrinal only insofar as it holds that

payment of interest on deposits ceases the moment the operation of the

bank is completely suspended by the Central Bank, but not when it applies

said ruling to interest on loans and advances made by the Central Bank,

that point not having been in issue since the Central Bank was not a party

therein. As a matter of f act, the paragraph extending its application "to all

other obligations of OBM which could not be paid during the period of its

complete closure" (p. 62) is prefaced by the term " parenthetically.

Moreover, interest payment on the loans and advances "made by the

Central Bank was the subject of explicit agreement between the parties at

a time when the OBM had already closed, the rehabilitation plan already

agreed upon and, in fact, was one of the terms and conditions for the

resumption of banking operations of OBM (now COMBANK). Significantly,

too, as brought out during the hearing, held on October 23, 1984, the

interest due has been determined and the moneys therefor held in escrow.

PLANA,J., dissenting:

In G.R. No. L-29352, the issue was whether the Central Bank acted with

grave abuse of discretion in ordering the closure in 1968 of the Overseas

Bank of Manila OBM By a closely divided vote, the Court said Yes. (41 SCRA

565.)

G.R. No. L-49353 (Overseas Bank of Manila vs. Court of Appeals andTony Tapia, etc.) was an entirely different case. The issue there was

whether OBM, during the actual stoppage of its operations by order of the

Central Bank, was liable to pay interest on deposits therein. The Supreme

Court (Second Division) held that "it should be deemed read into every

contract of deposit with a bank that the obligation to pay interest on the

deposit ceases the moment the operation of the bank is completely

suspended by the duly constituted authority, the Central Bank." (105 SCRA

49.) Going beyond the narrow issue raised by the parties, the Court added-


17/18

Parenthetically, We may add for the guidance of those who might be










closure. (Ibid., at 62.)

Wanting to adopt practical solutions for the OBM problems, the Central

Bank and OBM submitted a Rehabilitation Program which, among others,

stipulated the payment by OBM of 6% interest per annum on its

obligations to the Central Bank. (These were the CB loans and advances to

OBM before the Central Bank closure of OBM, which were used by the

latter to meet its liquidity problems.) The Rehabilitation Program was

approved by the Supreme Court in its Resolution dated October 23,1974.

Unfortunately, the Rehabilitation Program did not succeed. And so, the

Central Bank called for bidders to recapitalize OBM It was at this point that

the Investment and Underwriting Corporation of the Philippines (IUCP)

acquired controlling interest in OBM IUCP specifically agreed to pay the 6%

interest on the aforestated liabilities to the Central Bank. (These voluntary

assumption of contractual liability was subsequently modified, but said

modification was later withdrawn upon agreement of the Central Bank andIUCP.

In 1981, OBM reopened business under its new corporate name,

Commercial Bank of Manila (COMBANK). On April 13, 1981, COMBANK

paid Central Bank partial interests from August 1, 1968 to January 7, 1981

on the P63 M advances of the Central Bank to OBM (Annexes "C" and "D"

of Motion for Clarificatory Ruling dated July 29, 1982.) However, it refused

further payment of interest when the Supreme Court rendered its decision

in OBM vs. CA and Tony Tapia, supra, promulgated on June 11, 1981,

which held that OBM was not liable for interest on deposits during the

time of its actual closure. COMBANK claimed coverage by the said decision,

as against the contrary position of the Central Bank.

To solve the impasse, COMBANK and the Central Bank agreed to abide by

any clarificatory ruling the Supreme Court may render on the matter.

As noted before, Ramos vs. Central Bank was decided by this Court way

back on October 4, 1971 on the issue of the validity of the OBM closure.

The case did not involve any question as to the liability of OBM for interest

on deposits or any other obligation. Surprisingly, however, on February 17,

1982 more than 10 years after the entry of judgment in Ramos vs.

Central Bank COMBANK filed a motion to intervene in said case as well

as a motion praying for a clarificatory ruling on the liability of OBM to pay

interest on Central Bank loans and advances.

In a Minute Resolution dated October 19, 1982, this Court ruled that OBM

is not liable to pay interest on Central Bank loans and advances during the

period of its closure. The motion of the Central Bank under consideration

seeks a reconsideration of that ruling.

With all due respect, I dissent from the main resolution for the following

reasons:

1. As noted above, Ramos vs. CB was limited to the issue of the legality of

the CB order stopping the operations of OBM It did not involve any

question as to the liability of OBM to pay interest on deposits or other

obligations. The COMBANK motion for clarification regarding OBM liability

for interest payment on CB loans and advances was entirely foreign to the

case, quite apart from the fact that the said motion was filed on February17, 1982, i.e., long after the entry of judgment in Ramos vs. CB in 1971,

and was not at all related to the execution of the judgment therein. I

therefore share the view of Mr. Justice Aquino that this Court has no

jurisdiction to resolve in G.R. No. L-29352 the issue of interest liability of

COMBANK to the Central Bank, for which reason the Court's resolution

dated October 19, 1982 should be reconsidered and set aside.


18/18

2. However, brushing aside the issue of jurisdiction, there are cogent

reasons why OBM (now COMBANK) should be held liable for the payment

of interests on CB loans and advances.

(a) The loans and advances in question were granted by the Central Bank

to OBM before the latter's closure in 1968 to enable it to meet its

obligations to its depositors whose money (deposits) it had been able to

use in the generation of income.

(b) For the period during which OBM stopped banking operations, it

collected interests on loans granted by it to its clients. (Actually, the

Central Bank closure order was limited only to normal banking operations;

it did not prohibit the collection of OBM receivables, including interests

due.) If OBM thus collected interests on loans granted by it, why should it

not pay interest on loans and advances given to it by the Central Bank to

meet its liquidity problems? Is it not enough that OBM has already been

exempted from the payment of interests on bank deposits?

(c) Money does not come gratuitously to the Central Bank. It has cost. This

is now of common knowledge because the JOBO bills and the high

interests rates they carry are familiar to all. But even before the advent of

JOBO bills, the Central Bank was borrowing money locally and/or from

external sources and paying interests on borrowed funds. By all relevant

standards, it is only fair and proper that the Central Bank should be

allowed to recover its investment and the cost thereof.

(d) I do not think that the liability or non-liability of the OBM (COMBANK)

for interest payment on CB loans and advances would either prejudice or

benefit the GSIS, the government instrumentality which owns 99.93% ofthe outstanding capital stock of COMBANK. When the GSIS bought the

controlling interest in COMBANK, the vendor (IUCP/Herdis Group) together

with the Emerito Ramos Group placed in escrow with the INTERBANK the

amount of P 47.2 million to answer for the interest liability of COMBANK in

case the Supreme Court rules that the latter is liable therefor. On the other

hand, however, should the Supreme Court decide that COMBANK is not

liable, the amount held in escrow would be returned to the IUCP/Herdis

Group and the Emerito Ramos Group. It is therefore clear that neither the

GSIS nor COMBANK will be affected, one way or the other, by any ruling of

the Supreme Court on the issue at bar. But certainly, the Central Bank and

the Philippine Government stand to lose some P 47 million in interests

shouldthe Supreme Court hold that COMBANK is not liable to pay interest

on CB pre-1968 loans and advances from which OBM has unquestionably

benefited.

Documents

Digests in Credit Transactions