Nacar v.
Gallery Frames
G.R. No. 189871
FACTS: Dario Nacar was dismissed by his employer Gallery Frames on Jan. 24,
1997. He filed a case of illegal dismissal, in which the Labor Arbiter rules in his
favor. On Oct. 15, 1998, the LA rendered a decision that he be awarded backwages
and separation pay in lieu to his reinstatement in the amount of P158,919.92.
Gallery Frames appealed the decision until it arrived at the SC who
ultimately denied the petition.
An Entry of Judgment was later issued certifying that the resolution
became final and executory on May 27, 2002
Nacar filed a Motion for Correct Computation, assailing that the
backwages should be computed from Jan. 24, 1997, the day of his dismissal, to
May 27, 2002, the finality of the Resolution of the Supreme Court. This
computation would lead to an amount of P471,320.21.
Gallery Frames argue that the computation of the Labor Arbiter on Oct.
15, 1998 worth P158,919.92 should be followed since it become final and
executory hence cannot be altered anymore.
The computation was again reassessed by the Computation and
Examination Unit and resulted to an award of P147,560.19. This amount was
eventually received by Nacar.
Nacar filed a motion for re-computation to include the interest. He was
granted by the LA of P11,459, the difference from 158k to the 147k he already
receieved.
ISSUE: How to compute the legal interest?
HELD: The Court mentioned the landmark case of Eastern Shipping Lines v. CA,
wherein the Court laid down the guidelines for computing legal interest.
The guidelines are the following:
1. When obligation consists of payment of money and is breached, the
interest should be that which 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 12% per annum shall be used from
the judicial or extrajudicial demand under Art. 1169 of the Civil Code
2. When obligation, not consisting of payment of money, is breached, an
interest may be imposed at the discretion of the court at the rate of 6% per
annum. However, no interest shall be adjudged on damages until demand
has been made, judicially or extrajudicially, but when it is not certain when
the demand is made, the interest shall begin to run only from the date of
judgment of the court is made.
3. When the judgment of the court become final and executory, the rate of legal
interest , whether it is an obligation to pay a sum of money or not, shall be
12% per annun from such finality until its satisfaction.
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However, the Banko Sentral ng Pilipinas recently issued a Circular on
2013 which provides the following:
1. The rate of interest on obligation to pay money, in the absence of
stipulation to such rate of interest, shall be 6% per annum
This circular took effect on July 1, 2013.
Thus, from July 1, 2013, the rate of 12% as legal interest on obligations
to pay money, as laid down by Easter Shipping Lines, should no longer apply.
The 6% rate should be followed prospectively. Thus, 12% rate shall apply only
until June 30, 2013.
Therefore, those judgments that have become final and executory prior
July 1, 2013 shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.
To be for future guidelines, the guidelines laid down in Easter Shipping
Lines, modified to the BSP Circular, are as follow: (parapharsed)
1. When an obligation, regardless of source, is breached, the
contravenor can be held for damages
2. The rate interest is imposed, as follow:
a. Obligation consists of payment of money, the interest due
should be that stipulated in writing by the parties.
Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded.
In the absence of stipulation, the rate shall be 6% per
annum to be computed from default (extrajudicial or
judicial demand) subject to Art. 1169.
b. Obligation, not consisting of money, the interest may be
imposed by the court is 6% per annum. No interest e
adjudged until demand has been established n certainty.
Accordingly, where demand is established, the interest
shall begin to run from the time demand is made judicially
or extrajudicially.
But when the time of demand is uncertain, the interest shall
begin to run only from the date of judgment of the court is
made.
c. When the judgment of the court become final and
executory, the rate of legal interest , whether it is an
 obligation to pay a sum of money or not, shall be 12% per
annun from such finality until its satisfaction.

Wherefore, the Court orderedthe Labor Arbiter for another re-

computation of the award due to Nacar applying the new guidelines.
 Computation of backwages and separation pay shall be made
up May 27, 2002, when the resolution of the Court became final
and executory.
 Additionally, the computation of interest shall be 12% from May
27, 2002 to June 30, 2014, and 6% from July 1, 2013 until their
satisfaction.