Nacar vs. Gallery Frames

A recomputation of backwages and separation pay during the execution of a final illegal dismissal decision is not an alteration of that decision and does not violate the principle of immutability of final judgments, because the recomputation is a necessary consequence flowing from the nature of the illegality of dismissal declared in the decision, with reliefs continuing to accrue until full satisfaction under Article 279 of the Labor Code.

Petitioner Dario Nacar was employed by respondent Gallery Frames, a business owned or operated by Felipe Bordey, Jr. Nacar was hired in August 1990 at a daily rate of ₱198.00. After his dismissal, Nacar filed a complaint for constructive dismissal before the NLRC Arbitration Branch. The case traversed multiple levels of the labor and judicial system, including prior proceedings before the Supreme Court in G.R. No. 151332, where the Court denied respondents' petition and the resolution became final and executory on May 27, 2002. The present petition arose from a dispute over the proper computation of the monetary award during execution proceedings.

Petitioner Dario Nacar was employed by respondent Gallery Frames, owned or operated by Felipe Bordey, Jr., starting August 1990 at a daily rate of ₱198.00. On January 24, 1997, Nacar was dismissed from employment. He filed a complaint for constructive dismissal before the NLRC Arbitration Branch, docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a decision in favor of Nacar, finding that he was dismissed without just or valid cause and was never afforded due process. The Labor Arbiter awarded separation pay in lieu of reinstatement—given the strained relationship between the parties and Nacar's apparent reluctance to be reinstated—and backwages, both computed only up to the promulgation of the decision. The total award was ₱158,919.92, consisting of ₱62,986.56 in separation pay and ₱95,933.36 in backwages. The dispositive portion ordered respondents to pay these amounts jointly and severally.

Respondents appealed to the NLRC, which dismissed the appeal on February 29, 2000. Respondents then filed a petition for review on certiorari before the CA, which dismissed the petition on August 24, 2000, and denied reconsideration on May 8, 2001. Respondents elevated the matter to the Supreme Court in G.R. No. 151332, where the petition was denied on April 17, 2002. An Entry of Judgment was issued certifying that the resolution became final and executory on May 27, 2002.

The case was referred back to the Labor Arbiter for execution. On November 5, 2002, Nacar filed a Motion for Correct Computation, praying that his backwages be computed from January 24, 1997 up to May 27, 2002—the date of finality. The NLRC Computation and Examination Unit arrived at an updated amount of ₱471,320.31. A Writ of Execution was issued on December 2, 2002. Respondents moved to quash, arguing that the original decision's computation was final and could no longer be altered. The Labor Arbiter denied the motion on January 13, 2003, and issued an Alias Writ of Execution the next day.

Respondents appealed again to the NLRC, which on June 30, 2003 granted the appeal and ordered a recomputation. An Entry of Judgment was issued on August 20, 2003. The records were forwarded to the Computation and Examination Unit, which reassessed the award to ₱147,560.19. Nacar received this amount. He then filed a Manifestation and Motion praying for recomputation to include appropriate interests. On May 10, 2005, the Labor Arbiter granted the motion but only for the balance of ₱11,459.73, reasoning that the October 15, 1998 decision—which stated the awards were "computed only up to [the] promulgation of this decision"—should be enforced as the final judgment, capping the total at ₱158,919.92. Nacar appealed to the NLRC, which denied the appeal on September 27, 2006, and denied reconsideration on January 31, 2007. Nacar then filed a petition for review on certiorari before the CA, which denied the petition on September 23, 2008, holding that the final and executory decision could no longer be modified except to correct clerical errors. The CA denied reconsideration on October 9, 2009.

• Recomputation Not Precluded by Finality: Petitioner argued that notwithstanding the computation of backwages in the Labor Arbiter's decision, the same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. He maintained that the reckoning point for computation should be May 27, 2002—the date the Supreme Court resolution in G.R. No. 151332 became final and executory—and not October 15, 1998 when the Labor Arbiter's decision was rendered.
• Entitlement to Legal Interest: Petitioner posited that he is entitled to the payment of interest from the finality of the decision until full payment by respondents.
• Body of Decision Subservient to Dispositive Portion: Petitioner assigned as error the CA's upholding of the NLRC resolutions, which sustained the Labor Arbiter's May 10, 2005 Order making the dispositive portion of the October 15, 1998 decision subservient to an opinion expressed in the body of the same decision.

• No Further Recomputation Required: Respondents asserted that since only separation pay and limited backwages were awarded by the October 15, 1998 decision, no more recomputation is required. They insisted that the decision clearly stated the awards were "computed only up to [the] promulgation of this decision," and since petitioner did not appeal the decision, he is only entitled to the total amount of ₱158,919.92.
• Immutability of Judgment: Respondents contended that petitioner only questioned the award during execution proceedings, long after the decision had become final and executory. They argued that allowing further recomputation at this stage would substantially vary the decision and violate the rule on immutability of judgments.

• Recomputation During Execution: Whether a recomputation of backwages and separation pay during the execution of a final illegal dismissal decision—where the Labor Arbiter's original computation was pegged as of the date of the decision—constitutes a violation of the principle of immutability of final judgments.
• Legal Interest Rate: Whether the legal interest rate of 12% per annum established in Eastern Shipping Lines should be modified in light of BSP-MB Circular No. 799, and what rate should apply prospectively.

• Recomputation During Execution: No, recomputation does not violate immutability of judgments. The recomputation is a necessary consequence flowing from the nature of the illegality of dismissal declared in the decision, with reliefs continuing to accrue until full satisfaction under Article 279 of the Labor Code.
• Legal Interest Rate: Yes, the legal interest rate is modified. Effective July 1, 2013, the rate of legal interest in the absence of stipulation is reduced from 12% to 6% per annum pursuant to BSP-MB Circular No. 799, to be applied prospectively; judgments that became final and executory prior to July 1, 2013 shall continue to be implemented applying the rate fixed therein.

• Recomputation During Execution: The Court analyzed the Labor Arbiter's decision as consisting of two parts: the first part contains the finding of illegality of dismissal and its monetary consequences—separation pay in lieu of reinstatement, backwages, and attorney's fees—which cannot be disputed as it has been confirmed with finality; the second part is the computation of those awards, which is time-bound as shown by the figures used. The second part, being merely a computation of what the first part established, can by its nature be recomputed. Drawing from Session Delights Ice Cream and Fast Foods vs. Court of Appeals, the Court clarified that a recomputation during execution is a necessary consequence that flows from the nature of the illegal dismissal declared in the decision. Article 279 of the Labor Code provides for the consequences of illegal dismissal in no uncertain terms, with reliefs continuing to add up until full satisfaction. When separation pay is allowed in lieu of reinstatement, the finality of the illegal dismissal decision becomes the reckoning point, so that separation pay and backwages are computed up to that point. The increased amount respondents must pay is a consequence of the risk they ran when they continued to seek recourses against the Labor Arbiter's decision. The recomputation does not constitute an alteration or amendment of the final decision because the illegal dismissal ruling stands; only the computation of its monetary consequences is affected.

• Legal Interest Rate: The Court took judicial notice of BSP-MB Resolution No. 796 dated May 16, 2013, which approved the amendment of Section 2 of Circular No. 905, Series of 1982, and the issuance of Circular No. 799, Series of 2013, effective July 1, 2013. The new circular reduced the rate of interest for loans or forbearance of money, goods, or credits and the rate allowed in judgments, in the absence of express stipulation, from 12% to 6% per annum. The Court affirmed the BSP-MB's authority to set interest rates, citing Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board. The Court held that the new rate could only be applied prospectively and not retroactively. Consequently, the 12% per annum legal interest applies until June 30, 2013, and the 6% per annum rate applies from July 1, 2013 onward. The Court accordingly modified the guidelines laid down in Eastern Shipping Lines to embody BSP-MB Circular No. 799, and clarified that judgments that became final and executory prior to July 1, 2013 shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

• Recomputation of Monetary Awards During Execution — A recomputation of backwages and separation pay during the execution of a final illegal dismissal decision does not constitute an alteration or amendment of the final decision and does not violate the principle of immutability of final judgments. The decision is read as having two parts: (1) the finding of illegality of dismissal and its monetary consequences, which is final and undisputed; and (2) the computation of those awards, which is time-bound and by its nature subject to recomputation. The recomputation is a necessary consequence that flows from the nature of the illegal dismissal declared, with reliefs continuing to accrue until full satisfaction under Article 279 of the Labor Code. When separation pay is awarded in lieu of reinstatement, the finality of the decision becomes the reckoning point for computation.

• Modified Guidelines on Legal Interest (Eastern Shipping Lines as modified by Nacar) — The guidelines on the computation of legal interest, originally laid down in Eastern Shipping Lines, Inc. vs. Court of Appeals, are modified to embody BSP-MB Circular No. 799: (1) When the obligation is breached and consists in the payment of a sum of money (i.e., a loan or forbearance of money), the interest due should be that stipulated in writing; in the absence of stipulation, the rate shall be 6% per annum computed from default. (2) When an obligation not constituting a loan or forbearance of money is breached, interest on damages may be imposed at the discretion of the court at 6% per annum. (3) When the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 6% per annum from such finality until satisfaction. Judgments that became final and executory prior to July 1, 2013 shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

• "A recomputation (or an original computation, if no previous computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the established jurisprudence on this provision – that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the final decision being implemented." — This passage articulates the ratio decidendi on the recomputation issue, establishing that recomputation is read into the decision by operation of law and does not violate immutability of judgments.

• "Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum... but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively." — This passage announces the prospective reduction of the legal interest rate from 12% to 6% per annum effective July 1, 2013, a ruling frequently cited in subsequent jurisprudence on legal interest.

• "That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision." — This passage explains why the employer bears the risk of increased monetary liability when it pursues appeals rather than promptly satisfying the judgment.

• Session Delights Ice Cream and Fast Foods vs. Court of Appeals (Sixth Division), G.R. No. 172149, February 8, 2010 — Controlling precedent directly on point. The Court found the present case similar to Session Delights, where the issue was the propriety of recomputation of awards during execution and whether it violated the principle of immutability of judgment. The Court adopted the same two-part analysis of the Labor Arbiter's decision and the same conclusion that recomputation is a necessary consequence of the illegal dismissal ruling.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994 — Landmark case establishing the guidelines for computing legal interest. The Court modified these guidelines to reflect the reduced 6% per annum rate mandated by BSP-MB Circular No. 799, effective July 1, 2013.

• Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer vs. Bangko Sentral Monetary Board, G.R. No. 192986, January 15, 2013 — Cited to affirm the authority of the BSP-MB to set interest rates and to issue and enforce circulars prescribing maximum rates of interest for loans and forbearances of money.

• Article 279, Labor Code — Provides for the consequences of illegal dismissal, including reinstatement and backwages. The Court held that the reliefs under Article 279 continue to add up until full satisfaction, and that when separation pay is awarded in lieu of reinstatement, the finality of the decision becomes the reckoning point for computation of separation pay and backwages.

• Section 3, Rule VIII, NLRC Rules of Procedure — Requires the Labor Arbiter to embody in the decision or order the detailed and full amount awarded. The Court noted this requirement explains why the Labor Arbiter included a computation in the decision, but clarified that the computation is time-bound and subject to recomputation.

• Article 1169, Civil Code — Governs default and the accrual of interest from judicial or extrajudicial demand. Referenced in the modified guidelines on legal interest computation.

• BSP-MB Circular No. 799, Series of 2013 — Issued pursuant to BSP-MB Resolution No. 796 dated May 16, 2013, amending Section 2 of Circular No. 905, Series of 1982. Reduced the rate of interest for loans or forbearance of money, goods, or credits and the rate allowed in judgments, in the absence of express stipulation, from 12% to 6% per annum, effective July 1, 2013.

• Section 2, Circular No. 905, Series of 1982 (as amended) — Previously set the legal interest rate at 12% per annum; amended by Circular No. 799 to reduce it to 6% per annum.

Chief Justice Maria Lourdes P. A. Sereno, Associate Justice Antonio T. Carpio, Associate Justice Presbitero J. Velasco, Jr., Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Arturo D. Brion, Associate Justice Lucas P. Bersamin, Associate Justice Mariano C. Del Castillo, Associate Justice Roberto A. Abad, Associate Justice Martin S. Villarama, Jr., Associate Justice Jose Portugal Perez, Associate Justice Jose Catral Mendoza, Associate Justice Bienvenido L. Reyes, Associate Justice Estela M. Perlas-Bernabe, and Associate Justice Marvic Mario Victor F. Leonen.