G.R. No.

97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.

HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,

respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

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 scrutiny 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 17341 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 decided3 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." (Emphasis
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:

xxx xxx xxx

(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.
(Emphasis 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. (Emphasis found in
the text) —

should have, instead, been applied. This Court6 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.

xxx xxx xxx

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 Court8
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)

. . . 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 (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 to 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). (Emphasis 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 Court10 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 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. (Emphasis
supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court11 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 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

six (6%) percent interest thereon computed from the finality of this decision until paid.
(Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 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 (Emphasis 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:

. . . , 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 not apply to actions based on a breach of employment contract like the case
at bar. (Emphasis 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 . . . until fully
paid." Again, in applying the 6% legal interest per annum under the Civil Code, the
Court15 declared:

. . . , (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 forbearance16 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-delicts18 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 116923 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
court24 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., took no part.

#Footnotes

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 Melencio-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) Qausi-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.

The Lawphil Project - Arellano Law Foundation

 [G.R. No. 47800. December 2, 1940.]

MAXIMO CALALANG, Petitioner, v. A. D. WILLIAMS, ET AL., Respondents.

Maximo Calalang in his own behalf.

Solicitor General Ozaeta and Assistant Solicitor General Amparo for respondents
Williams, Fragante and Bayan

City Fiscal Mabanag for the other respondents.

SYLLABUS

1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No.

648; DELEGATION OF LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF PUBLIC
WORKS AND SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS TO
PROMULGATE RULES AND REGULATIONS. — The provisions of section 1 of
Commonwealth Act No. 648 do not confer legislative power upon the Director of Public Works
and the Secretary of Public Works and Communications. The authority therein conferred upon
them and under which they promulgated the rules and regulations now complained of is not to
determine what public policy demands but merely to carry out the legislative policy laid down by
the National Assembly in said Act, to wit, "to promote safe transit upon, and avoid obstructions
on, roads and streets designated as national roads by acts of the National Assembly or by
executive orders of the President of the Philippines" and to close them temporarily to any or all
classes of traffic "whenever the condition of the road or the traffic thereon makes such action
necessary or advisable in the public convenience and interest." The delegated power, if at all,
therefore, is not the determination of what the law shall be, but merely the ascertainment of the
facts and circumstances upon which the application of said law is to be predicated. To
promulgate rules and regulations on the use of national roads and to determine when and how
long a national road should be closed to traffic, in view of the condition of the road or the traffic
thereon and the requirements of public convenience and interest, is an administrative function
which cannot be directly discharged by the National Assembly. It must depend on the discretion
of some other government official to whom is confided the duty of determining whether the
proper occasion exists for executing the law. But it cannot be said that the exercise of such
discretion is the making of the law.

2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY. —

Commonwealth Act No. 548 was passed by the National Assembly in the exercise of the
paramount police power of the state. Said Act, by virtue of which the rules and regulations
complained of were promulgated, aims to promote safe transit upon and avoid obstructions on
national roads, in the interest and convenience of the public. In enacting said law, therefore, the
National Assembly was prompted by considerations of public convenience and welfare. It was
inspired by a desire to relieve congestion of traffic, which is, to say the least, a menace to public
safety. Public welfare, then, lies at the bottom of the enactment of said law, and the state in order
to promote the general welfare may interfere with personal liberty, with property, and with
business and occupations. Persons and property may be subjected to all kinds of restraints and
burdens, in order to secure the general comfort, health, and prosperity of the state (U.S. v. Gomer
Jesus, 31 Phil., 218). To this fundamental aim of our Government the rights of the individual are
subordinated. Liberty is a blessing without which life is a misery, but liberty should not be made
to prevail over authority because then society will fall into anarchy. Neither should authority be
made to prevail over liberty because then the individual will fall into slavery. The citizen should
achieve the required balance of liberty and authority in his mind through education and, personal
discipline, so that there may be established the resultant equilibrium, which means peace and
order and happiness for all. The moment greater authority is conferred upon the government,
logically so much is withdrawn from the residuum of liberty which resides in the people. The
paradox lies in the fact that the apparent curtailment of liberty is precisely the very means of
insuring its preservation.

3. ID.; ID.; SOCIAL JUSTICE. — Social justice is "neither communism, nor despotism, nor
atomism, nor anarchy," but the humanization of laws and the equalization of social and
economic forces by the State so that justice in its rational and objectively secular conception may
at least be approximated. Social justice means the promotion of the welfare of all the people, the
adoption by the Government of measures calculated to insure economic stability of all the
competent elements of society, through the maintenance of a proper economic and social
equilibrium in the interrelations of the members of the community, constitutionally, through the
adoption of measures legally justifiable, or extra-constitutionally, through the exercise of powers
underlying the existence of all governments on the time-honored principle of salus populi est
suprema lex. Social justice, therefore, must be founded on the recognition of the necessity of
interdependence among divers and diverse units of a society and of the protection that should be
equally and evenly extended to all groups as a combined force in our social and economic life,
consistent with the fundamental and paramount objective of the state of promoting the health,
comfort, and quiet of all persons, and of bringing about "the greatest good to the greatest
number."

DECISION

LAUREL, J.:

Maximo Calalang, in his capacity as a private citizen and as a taxpayer of Manila,

brought before this court this petition for a writ of prohibition against the respondents,
A. D. Williams, as Chairman of the National Traffic Commission; Vicente Fragante, as
Director of Public Works; Sergio Bayan, as Acting Secretary of Public Works and
Communications; Eulogio Rodriguez, as Mayor of the City of Manila; and Juan
Dominguez, as Acting Chief of Police of Manila.

It is alleged in the petition that the National Traffic Commission, in its resolution of July
17, 1940, resolved to recommend to the Director of Public Works and to the Secretary
of Public Works and Communications that animal-drawn vehicles be prohibited from
passing along Rosario Street extending from Plaza Calderon de la Barca to Dasmariñas
Street, from 7:30 a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal
Avenue extending from the railroad crossing at Antipolo Street to Echague Street, from
7 a.m. to 11 p.m., from a period of one year from the date of the opening of the
Colgante Bridge to traffic; that the Chairman of the National Traffic Commission, on
July 18, 1940 recommended to the Director of Public Works the adoption of the
measure proposed in the resolution aforementioned, in pursuance of the provisions of
Commonwealth Act No. 548 which authorizes said Director of Public Works, with the
approval of the Secretary of Public Works and Communications, to promulgate rules
and regulations to regulate and control the use of and traffic on national roads; that on
August 2, 1940, the Director of Public Works, in his first indorsement to the Secretary
of Public Works and Communications, recommended to the latter the approval of the
recommendation made by the Chairman of the National Traffic Commission as
aforesaid, with the modification that the closing of Rizal Avenue to traffic to animal-
drawn vehicles be limited to the portion thereof extending from the railroad crossing at
Antipolo Street to Azcarraga Street; that on August 10, 1940, the Secretary of Public
Works and Communications, in his second indorsement addressed to the Director of
Public Works, approved the recommendation of the latter that Rosario Street and Rizal
Avenue be closed to traffic of animal-drawn vehicles, between the points and during the
hours as above indicated, for a period of one year from the date of the opening of the
Colgante Bridge to traffic; that the Mayor of Manila and the Acting Chief of Police of
Manila have enforced and caused to be enforced the rules and regulations thus
adopted; that as a consequence of such enforcement, all animal-drawn vehicles are not
allowed to pass and pick up passengers in the places above-mentioned to the detriment
not only of their owners but of the riding public as well.

It is contended by the petitioner that Commonwealth Act No. 548 by which the Director
of Public Works, with the approval of the Secretary of Public Works and
Communications, is authorized to promulgate rules and regulations for the regulation
and control of the use of and traffic on national roads and streets is unconstitutional
because it constitutes an undue delegation of legislative power. This contention is
untenable. As was observed by this court in Rubi v. Provincial Board of Mindoro (39
Phil, 660, 700), "The rule has nowhere been better stated than in the early Ohio case
decided by Judge Ranney, and since followed in a multitude of cases, namely: ’The true
distinction therefore is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in pursuance of the law. The
first cannot be done; to the latter no valid objection can be made.’ (Cincinnati, W. & Z.
R. Co. v. Comm’rs. Clinton County, 1 Ohio St., 88.) Discretion, as held by Chief Justice
Marshall in Wayman v. Southard (10 Wheat., 1) may be committed by the Legislature
to an executive department or official. The Legislature may make decisions of executive
departments or subordinate officials thereof, to whom it has committed the execution of
certain acts, final on questions of fact. (U.S. v. Kinkead, 248 Fed., 141.) The growing
tendency in the decisions is to give prominence to the ’necessity’ of the case." cralaw virtua1aw library

Section 1 of Commonwealth Act No. 548 reads as follows: jgc:chanrobles.com.ph

"SECTION 1. To promote safe transit upon, and avoid obstructions on, roads and
streets designated as national roads by acts of the National Assembly or by executive
orders of the President of the Philippines, the Director of Public Works, with the
approval of the Secretary of Public Works and Communications, shall promulgate the
necessary rules and regulations to regulate and control the use of and traffic on such
roads and streets. Such rules and regulations, with the approval of the President, may
contain provisions controlling or regulating the construction of buildings or other
structures within a reasonable distance from along the national roads. Such roads may
be temporarily closed to any or all classes of traffic by the Director of Public Works and
his duly authorized representatives whenever the condition of the road or the traffic
thereon makes such action necessary or advisable in the public convenience and
interest, or for a specified period, with the approval of the Secretary of Public Works
and Communications." cralaw virtua1aw library

The above provisions of law do not confer legislative power upon the Director of Public
Works and the Secretary of Public Works and Communications. The authority therein
conferred upon them and under which they promulgated the rules and regulations now
complained of is not to determine what public policy demands but merely to carry out
the legislative policy laid down by the National Assembly in said Act, to wit, "to promote
safe transit upon and avoid obstructions on, roads and streets designated as national
roads by acts of the National Assembly or by executive orders of the President of the
Philippines" and to close them temporarily to any or all classes of traffic "whenever the
condition of the road or the traffic makes such action necessary or advisable in the
public convenience and interest." The delegated power, if at all, therefore, is not the
determination of what the law shall be, but merely the ascertainment of the facts and
circumstances upon which the application of said law is to be predicated. To promulgate
rules and regulations on the use of national roads and to determine when and how long
a national road should be closed to traffic, in view of the condition of the road or the
traffic thereon and the requirements of public convenience and interest, is an
administrative function which cannot be directly discharged by the National Assembly.
It must depend on the discretion of some other government official to whom is confided
the duty of determining whether the proper occasion exists for executing the law. But it
cannot be said that the exercise of such discretion is the making of the law. As was said
in Locke’s Appeal (72 Pa. 491): "To assert that a law is less than a law, because it is
made to depend on a future event or act, is to rob the Legislature of the power to act
wisely for the public welfare whenever a law is passed relating to a state of affairs not
yet developed, or to things future and impossible to fully know." The proper distinction
the court said was this: "The Legislature cannot delegate its power to make the law;
but it can make a law to delegate a power to determine some fact or state of things
upon which the law makes, or intends to make, its own action depend. To deny this
would be to stop the wheels of government. There are many things upon which wise
and useful legislation must depend which cannot be known to the law-making power,
and, must, therefore, be a subject of inquiry and determination outside of the halls of
legislation." (Field v. Clark, 143 U. S. 649, 694; 36 L. Ed. 294.)

In the case of People v. Rosenthal and Osmeña, G.R. Nos. 46076 and 46077,
promulgated June 12, 1939, and in Pangasinan Transportation v. The Public Service
Commission, G.R. No. 47065, promulgated June 26, 1940, this Court had occasion to
observe that the principle of separation of powers has been made to adapt itself to the
complexities of modern governments, giving rise to the adoption, within certain limits,
of the principle of "subordinate legislation," not only in the United States and England
but in practically all modern governments. Accordingly, with the growing complexity of
modern life, the multiplication of the subjects of governmental regulations, and the
increased difficulty of administering the laws, the rigidity of the theory of separation of
governmental powers has, to a large extent, been relaxed by permitting the delegation
of greater powers by the legislative and vesting a larger amount of discretion in
administrative and executive officials, not only in the execution of the laws, but also in
the promulgation of certain rules and regulations calculated to promote public interest.

The petitioner further contends that the rules and regulations promulgated by the
respondents pursuant to the provisions of Commonwealth Act No. 548 constitute an
unlawful interference with legitimate business or trade and abridge the right to personal
liberty and freedom of locomotion. Commonwealth Act No. 548 was passed by the
National Assembly in the exercise of the paramount police power of the state.

Said Act, by virtue of which the rules and regulations complained of were promulgated,
aims to promote safe transit upon and avoid obstructions on national roads, in the
interest and convenience of the public. In enacting said law, therefore, the National
Assembly was prompted by considerations of public convenience and welfare. It was
inspired by a desire to relieve congestion of traffic. which is, to say the least, a menace
to public safety. Public welfare, then, lies at the bottom of the enactment of said law,
and the state in order to promote the general welfare may interfere with personal
liberty, with property, and with business and occupations. Persons and property may be
subjected to all kinds of restraints and burdens, in order to secure the general comfort,
health, and prosperity of the state (U.S. v. Gomez Jesus, 31 Phil., 218). To this
fundamental aim of our Government the rights of the individual are subordinated.
Liberty is a blessing without which life is a misery, but liberty should not be made to
prevail over authority because then society will fall into anarchy. Neither should
authority be made to prevail over liberty because then the individual will fall into
slavery. The citizen should achieve the required balance of liberty and authority in his
mind through education and personal discipline, so that there may be established the
resultant equilibrium, which means peace and order and happiness for all. The moment
greater authority is conferred upon the government, logically so much is withdrawn
from the residuum of liberty which resides in the people. The paradox lies in the fact
that the apparent curtailment of liberty is precisely the very means of insuring its
preservation.

The scope of police power keeps expanding as civilization advances. As was said in the
case of Dobbins v. Los Angeles (195 U.S. 223, 238; 49 L. ed. 169), "the right to
exercise the police power is a continuing one, and a business lawful today may in the
future, because of the changed situation, the growth of population or other causes,
become a menace to the public health and welfare, and be required to yield to the
public good." And in People v. Pomar (46 Phil., 440), it was observed that "advancing
civilization is bringing within the police power of the state today things which were not
thought of as being within such power yesterday. The development of civilization, the
rapidly increasing population, the growth of public opinion, with an increasing desire on
the part of the masses and of the government to look after and care for the interests of
the individuals of the state, have brought within the police power many questions for
regulation which formerly were not so considered." cralaw virtua1aw library

The petitioner finally avers that the rules and regulations complained of infringe upon
the constitutional precept regarding the promotion of social justice to insure the well-
being and economic security of all the people. The promotion of social justice, however,
is to be achieved not through a mistaken sympathy towards any given group. Social
justice is "neither communism, nor despotism, nor atomism, nor anarchy," but the
humanization of laws and the equalization of social and economic forces by the State so
that justice in its rational and objectively secular conception may at least be
approximated. Social justice means the promotion of the welfare of all the people, the
adoption by the Government of measures calculated to insure economic stability of all
the competent elements of society, through the maintenance of a proper economic and
social equilibrium in the interrelations of the members of the community,
constitutionally, through the adoption of measures legally justifiable, or extra-
constitutionally, through the exercise of powers underlying the existence of all
governments on the time-honored principle of salus populi est suprema lex.

Social justice, therefore, must be founded on the recognition of the necessity of

interdependence among divers and diverse units of a society and of the protection that
should be equally and evenly extended to all groups as a combined force in our social
and economic life, consistent with the fundamental and paramount objective of the
state of promoting the health, comfort, and quiet of all persons, and of bringing about
"the greatest good to the greatest number." cralaw virtua1aw library

In view of the foregoing, the writ of prohibition prayed for is hereby denied, with costs
against the petitioner. So ordered.

Avanceña, C.J., Imperial, Diaz. and Horrilleno. JJ. concur.