EASTERN SHIPPING LINES, INC., PETITIONER, VS. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., RESPONDENTS.

The issues, albeit not completely novel, are: (a) whether
or not a claim for damage sustained on a shipment of goods can be a solidary,
or joint and several, liability of the common carrier, the arrastre operator
and the customs broker; (b) 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; and (c) whether the
applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).

The findings of the court a quo, adopted by the Court of
Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:

“This is an action against defendants shipping company, arrastre
operator and broker-forwarder for damages sustained by a shipment while in
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 Lading No. 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 and
without 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 (per
‘Bad Order Waybill’ No. 10649, Exh. E).

“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
who failed and refused to pay the same (Exhs. H, I, J, K, L).

“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 (per ‘Form of Subrogation,’ ‘Release’ and Philbanking check,
Exhs. M, N, and O).” (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both
courts. Here, the appellate court said:

“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 the
shipment 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.

“From the evidence the court found the following:

“‘The issues are:

‘1.   Whether or not the shipment sustained
losses/damages;

‘2.   Whether or not these losses/damages were
sustained while in the custody of defendants (in whose respective custody, if
determinable);

‘3.   Whether or not defendant(s) should be held
liable for the losses/damages (see plaintiff’s pre-Trial Brief, Records, p. 34;
Allied’s pre-Trial Brief, adopting plaintiff’s Records, p. 38).’

‘As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were
shipped in good order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was shipped
(Exhs. B and C). But when on December
12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.

‘Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the respective and/or successive
custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with
its ‘Additional Survey Notes,’ are considered. In the latter notes, it is stated that when the shipment was ‘landed on
vessel’ to dock of Pier # 15, South Harbor, Manila on December 12, 1981,’ it
was observed that ‘one (1) fiber drum (was) in damaged condition, covered by
the vessel’s Agent’s Bad Order Tally Sheet No. 86427.’ The report further
states that when defendant Allied Brokerage withdrew the shipment from
defendant arrastre operator’s custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the
drums reached the consignee, one drum was found with adulterated/faked
contents. It is obvious, therefore,
that these losses/damages occurred before the shipment reached the consignee
while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier’s duty
to observe extraordinary diligence in the vigilance of goods remains in full
force and effect even if the goods are temporarily unloaded and stored in
transit in the warehouse of the carrier at the place of destination, until the
consignee has been advised and has had reasonable opportunity to remove or
dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping’s own exhibit, the ‘Turn-Over Survey of Bad
Order Cargoes’ (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
found ‘open.’

“and thus held:

‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A.   Ordering defendants to pay plaintiff, jointly
and severally:

1.   The amount of 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 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
Management Contract);

2.   P3,000.00 as attorney’s fees, and

3.   Costs.

B.  Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED.’ (p. 207, Record).

“Dissatisfied, defendant’s recourse to US.

“The appeal is devoid of merit.

“After a careful scrunity of the evidence on record. We find that the conclusion drawn therefrom
is correct. As there is sufficient
evidence that the shipment sustained damage while in the successive possession
of appellants, and therefore they are liable to the appellee, as subrogee for
the amount it paid to the consignee.” (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in
toto the judgment of the court a quo.

In this petition, Eastern Shipping Lines, Inc., the common
carrier, attributes error and grave abuse of discretion on the part of the
appellate court when –

I.    IT HELD PETITIONER CARRIER JOINTLY AND
SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF
PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II.   IT HELD THAT THE GRANT OF INTEREST ON THE
CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF
THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT’S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions
raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions
this Court can merely tack to.

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 (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When
the goods shipped 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 (Art. 1735,
Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in
Article 1734^[1]
of the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre
operator with the obligation of properly delivering the goods to the consignee
has, too, been passed upon by the Court. In Fireman’s Fund Insurance vs. Metro Port Services (182 SCRA 455), we
have explained, in holding the carrier and the arrastre operator liable in solidum,
thus:

“The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila
Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of
the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line,
et al., 107 Phil 253 [1960]). Since it
is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.”

We do not, of course, imply by the above pronouncement that the
arrastre operator and the customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that attendant
facts in a given case may not vary the rule. 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 quo and 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 herein petitioner 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,^[2]
decided^[3]
on 15 May 1969, involved a suit for recovery of money arising
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 Rivera vs. Perez^[4],
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 (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman, 38 Phil. 302),’ then,
interest ‘should be from the date of the decision.’” (Underscoring
supplied)

The case of Reformina vs. Tomol,^[5]
rendered on 11 October 1985, was for “Recovery of Damages for Injury to
Person and Loss of Property.” After trial, the lower court decreed:

“WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and third party defendants and against the defendants and third party
plaintiffs as follows:

“Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:

“(a)   .
. . . .

“x x x                           x x x

“(g)   Plaintiffs Pacita F. Reformina and Francisco
Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III
together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a
month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total
sum of P370,000.00 as of June 4,
1972 with legal interest from the filing
of the complaint until paid and to pay
attorney’s fees of P5,000.00 with costs against defendants and third party plaintiffs.” (Underscoring
supplied.)

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. When the appellate court’s decision became
final, the case was remanded to the lower court for execution, and this was
when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari,
the petitioners contended that Central Bank Circular No. 416, providing thus –

“By virtue of the authority granted to it under Section 1 of Act
2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29,
1974, has prescribed that 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 express contract as to such rate of interest, shall be twelve (12%) percent
per annum. This Circular shall take
effect immediately.” (Italics found in the text) –

should have, instead, been applied. This Court^[6]
ruled:

“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.

“x x x        x x x                  x
x x

“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 which reads –

‘Art. 2209. – If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which is six percent per
annum.’”

The above rule was reiterated in Philippine Rabbit Bus Lines,
Inc., v. Cruz,^[7]
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. Tomol case, this
Court^[8]
modified 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,^[9]
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. (one of the petitioners) x x x to pay the plaintiff,
x x x, 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 x x x.” 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 (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the
Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception of attorney’s fees) occasioned by the loss of the
building (including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos 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. Solidary costs against
the defendant and third-party defendants (except Roman Ozaeta).” (Underscoring
supplied)

A motion for reconsideration was filed by
United Construction, contending that “the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in contravention of
law.” The Court^[10]
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 x x x is applicable only in the
following: (1) loans; (2) forbearance
of any money, goods or credit; and (3) rate allowed in judgments (judgments
spoken of refer to judgments involving loans or forbearance of any money, goods
or credits. (Philippine Rabbit Bus
Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA
260 [1985]). It is true that in
the instant case, there
is neither a loan or 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.

“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, as part
of the judgment for damages. Clearly, they are not applicable to
the instant case.” (Underscoring supplied.)

The subsequent case of American
Express International, Inc., vs. Intermediate Appellate Court^[11] was a petition for review on certiorari from 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,
for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court^[12] 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 six (6%) percent interest thereon computed from the finality
of this decision until paid.” (Underscoring supplied)

Reformina came into fore again in the 21 February 1989 case of
Florendo v. Ruiz^[13]
which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded
by the trial court moral 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.” (Underscoring supplied.)

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 annum from the date of the filing of the
complaint. Ascribing grave abuse of
discretion on the part of the trial judge, a petition for certiorari
assailed the said order. This Court
said:

“x x x, 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. x x x. Said circular [Central Bank Circular No.
416] does not apply to actions based on a breach of employment contract like
the case at bar.” (Underscoring supplied)

The Court reiterated that the 6% interest
per 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,^[14]
decided on 08 May 1992, involved the expropriation of certain parcels of
land. After conducting a hearing 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 x
x x until fully paid.” Again, in applying the 6% legal interest per annum
under the Civil Code, the Court^[15]
declared:

“x x x, (T)he transaction involved is clearly not a loan or
forbearance of money, goods or credits but expropriation of certain parcels of
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), and American Express International v. Intermediate Appellate
Court (1988).

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^[16] 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.

The “second group,” did not alter the pronounced rule on the
application of the 6% or 12% interest per annum,^[17]
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.

I.    When an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts^[18]
is breached, the contravenor can be held liable for damages.^[19]
The provisions under Title XVIII on “Damages” of the Civil Code govern in
determining the measure of recoverable damages.^[20]

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.^[21]
Furthermore, the interest due shall itself earn legal interest from the time it
is judicially demanded.^[22] 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^[23] 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^[24]
at the rate of 6% per annum.^[25] No
interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty.^[26]
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 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.

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.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado,
Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, and Kapunan, JJ., concur.

Mendoza, J., no part.

---

^[1]
Art. 1734. Common carriers are
responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:

(1) Flood,
storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war,
whether international or civil;

(3) Act or omission of the shipper
or owner of the goods;

(4) The
character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public
authority.

^[2]
28 SCRA 65.

^[3]
Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes,
Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando,
Francisco Capistrano, Claudio Teehankee and Antonio Barredo. Chief Justice Roberto Concepcion and Justice
Fred Ruiz Castro were on official leave.

^[4]
The correct caption of the case is “Claro Rivera vs. Amadeo Matute,
L-6998, 29 February 1956,” 98 Phil. 516.

^[5]
139 SCRA 260, 265.

^[6]
Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes
Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio
Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor
Alampay and Lino Patajo. Justice Ramon
Aquino concurred in the result. Justice
Efren Plana filed a concurring and dissenting opinion, concurred in by Justice
Claudio Teehankee while Chief Justice Felix Makasiar concurred with the
separate opinion of Justice Plana.

^[7]
143 SCRA 158.

^[8]
Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by
Justices Pedro Yap, Ameurfina MeIencio-Herrera, Isagani A. Cruz and Edgardo
Paras.

^[9]
160 SCRA 334.

^[10]
Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo
Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes, Justice Hugo
Gutierrez, Jr., took no part because he was the ponente in the Court of
Appeals.

^[11]
167 SCRA 209.

^[12]
Rendered per curiam with the concurrence of then Chief Justice
Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco,
Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina
Griño-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took
no part because they did not participate in the deliberations. Justices Edgardo
Paras and Florentino Feliciano also took no part.

^[13]
170 SCRA 461.

^[14]
208 SCRA 542.

^[15]
Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina
Melencio-­Herrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.

^[16]
Black’s Law Dictionary (1990 ed., 644) citing the case of Hafer v.
Spaeth, 22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the
context of usury law, as a
contractual obligation of lender
or creditor to refrain, during given period of time, from requiring borrower or
debtor to repay loan or debt then due and payable.

^[17]
In the case of Malayan Insurance, the application of the 6% and 12% interest
per annum has no bearing considering that this case was decided upon before the
issuance of Circular No. 416 by
the Central Bank.

^[18]
“ART. 1157. Obligations arise from.

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by
law; and

(5) Quasi-delicts.”

^[19]
“ART. 1170.   Those who in the
performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.”

^[20]
“ART. 2195. The provisions of this Title (on Damages)
shall be respectively applicable to all obligations mentioned in article 1157.”

^[21]
“ART. 1956. No interest shall be due
unless it has been expressly stipulated in writing.”

^[22]
“ART. 2212. Interest due shall earn
legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.”

^[23]
“ART. 1169. Those obliged to deliver or
to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.

“However, the demand by the
creditor shall not be necessary in order that delay may exist:

(1) When the
obligation or the law expressly so declare; or

(2) When from
the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or

(3) When
demand would be useless, as when the obligor has rendered it beyond his power
to perform.

“In reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins.”

^[24]
“ART. 2210. Interest may, in the discretion
of the court, be allowed upon damages
awarded for breach of contract.

“ART. 2211. In crimes and quasi-delicts, interest as a
part of the damages may, in a proper case, be adjudicated in the discretion of
the court.”

^[25]
“Art. 2209. If the obligation consists
in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment
of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.”

^[26]
“ART. 2213. Interest cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.”