Norsk Hydro (Philippines), Inc. vs. Premiere Development Bank

An award of damages arising from fraud or negligence, and not from a loan or forbearance of money, earns simple legal interest at 6% per annum computed from judicial or extrajudicial demand; compounding interest may not be imposed absent an express stipulation reduced to writing that likewise states the manner in which the interest is to be earned, and costs of suit, being mere statutory allowances for litigation expenses, cannot earn legal interest.

Norsk Hydro (Philippines), Inc., later known as Yara Fertilizers (Philippines), Inc., imported fertilizers into the Philippines and engaged Skyrider Brokerage International, Inc., a customs brokerage firm headed by general manager Marivic-Jong Briones, to compute the customs duties and taxes due on the importation and to transmit the corresponding payments to the Bureau of Customs. The payments were to be funded by crossed manager's checks drawn against accounts maintained with the Bank of the Philippine Islands and Citibank, N.A., while Premiere Development Bank, later Security Bank Corporation, figured as the collecting bank through which the instruments were negotiated. The regulatory backdrop includes Bangko Sentral ng Pilipinas Circular No. 799-13, which fixed the legal interest rate at 6% per annum effective July 1, 2013, and Rule 142 of the Revised Rules of Court, which limits the costs recoverable by a prevailing party.

Norsk Hydro (Philippines), Inc., later known as Yara Fertilizers (Philippines), Inc., imported fertilizers into the Philippines and engaged the services of Skyrider Brokerage International, Inc., a customs brokerage firm whose general manager was Marivic-Jong Briones, to compute the customs duties and taxes due on the importation and to transmit the corresponding payment to the Bureau of Customs for the release of the imported goods. To fund those payments, Norsk Hydro transmitted nineteen crossed manager's checks to Skyrider Brokerage, drawn against accounts maintained with the Bank of the Philippine Islands and Citibank, N.A.

Skyrider Brokerage never remitted the checks to the Bureau of Customs. According to the findings of the Regional Trial Court, Skyrider Brokerage and Jong Briones hired a certain David Banga to do the work for a fee equivalent to 10% of the amount given by the plaintiff, even though Banga was not a licensed customs broker and the licensed broker was Jong Briones herself; no authority had been given to Banga to transact with the Bureau of Customs on Norsk Hydro's behalf. The checks were instead deposited with Premiere Development Bank, later Security Bank Corporation, which allowed a certain Arthur Espino to deposit them in Account Nos. 01-00-780-1 and 0-5-02687-8 at its Pedro Gil Branch on the mere representation of Espino, who used a photocopy of the alleged Certification of Business Name of Norteam Seatransport Services showing him to be its president. Premiere Bank stamped the checks with the notation "prior endorsement and/or lack of endorsement guaranteed," and the Bank of the Philippine Islands and Citibank, N.A. cleared and paid the manager's checks in reliance on that endorsement stamp as collecting bank.

Because the customs duties and taxes were never paid to the government, Norsk Hydro and Norteam Seatransport Services suffered loss. On October 9, 2003, they filed a Complaint for Sum of Money and Damages with an Application for the Issuance of a Writ of Preliminary Attachment against Premiere Development Bank, the Bank of the Philippine Islands, Citibank, N.A., Skyrider Brokerage, and Jong Briones.

The Regional Trial Court found that Skyrider Brokerage and Jong Briones were part of a conspiracy in the commission of fraud against the plaintiff; that Premiere Bank, as a banking institution, was bound to ensure extraordinary diligence in dealing with clients and had allowed the deposit of the subject checks on the strength of a mere photocopy of a certification; and that there was a deliberate and/or negligent act on the part of Manuel Agoncillo, manager of the Pedro Gil Branch of Premiere Bank, in transacting the subject checks to the prejudice of the plaintiffs. It further found that although BPI and Citibank were not proven to have had any knowledge or involvement in any anomaly or irregularity on the subject checks, they could not escape responsibility as the banks that issued and cleared the manager's checks, subject to their right to claim reimbursement from Premiere Bank. On appeal, the Court of Appeals affirmed the finding that respondents acted in gross, wanton, and inexcusable negligence in the unauthorized encashment and conversion of the subject checks, to the prejudice of petitioners.

• Nature of the Obligation: Petitioners argued that the actual damages awarded in their favor in the total amount of P28,083,790.02 constituted a forbearance of money, which respondent Security Bank even admitted, and that the imposable interest was therefore 12% per annum from the date of extrajudicial demand on June 25, 2003 to June 30, 2013, and 6% per annum from July 1, 2013 until fully satisfied, pursuant to Nacar vs. Gallery Frames, G.R. No. 189871, 703 SCRA 439.
• Compounding of Interest: Petitioners maintained that pursuant to NFF Industrial Corporation vs. G&L Associated Brokerage, G.R. No. 178169, 745 SCRA 73 (2015), the interest earned and accrued on the award shall be compounded annually.
• Interest on Costs of Suit: Petitioners contended that the court a quo committed grave and reversible error in not considering interest as regards the costs of suit, arguing that disregarding legal interest on costs would place the prevailing party at a disadvantage because the cost of his money, supposedly approximated by legal interest, would never be recouped.

• Rate and Starting Point of Interest: Respondent Security Bank contended that the interest on the actual damages awarded should be imposed at only 6% per annum from the date of finality of the Decision on May 26, 2015 until the obligation is fully paid, considering that respondents' obligation did not arise from a loan or forbearance of money but as a result of fraud and negligence.
• Absence of Basis for Compounding: Security Bank argued that there is no basis to impose compounding interest on the said damages.
• No Interest on the Other Damages: Security Bank argued that the Decision dated April 14, 2010 did not impose interest for the other damages awarded to petitioners, such as moral and exemplary damages and attorney's fees.

• Nature of the Obligation and the Applicable Interest Rate: Whether the actual damages awarded in favor of petitioners in the total amount of P28,083,790.02 constitute a forbearance of money, such that the imposable interest is 12% per annum from the date of extrajudicial demand on June 25, 2003 to June 30, 2013, and 6% per annum from July 1, 2013 until fully satisfied.
• Compounding of Interest: Whether the interest earned and accrued on the award in petitioners' favor shall be compounded annually pursuant to NFF Industrial Corporation vs. G&L Associated Brokerage.
• Interest on Costs of Suit: Whether the costs of suit awarded to petitioners should likewise earn legal interest.

• Nature of the Obligation and the Applicable Interest Rate: No. The obligation of respondents arose from fraud and negligence, not from a loan or forbearance of money, so the imposable legal interest is 6% per annum, simple, computed from judicial or extrajudicial demand in accordance with the guidelines laid down in Arco Pulp and Paper Co. vs. Lim.
• Compounding of Interest: No. Compounding interest may be imposed only where there is an express stipulation for the payment of interest reduced to writing that likewise states the manner in which the interest is to be earned; absent such stipulation, only simple interest accrues.
• Interest on Costs of Suit: No. Costs of suit are statutory allowances to reimburse the prevailing party for litigation expenses and do not partake of the nature of a loan, forbearance of money, or an obligation demandable under Articles 1156 and 1157 of the Civil Code; they cannot earn legal interest.

• Nature of the Obligation and the Applicable Interest Rate: The Decision dated April 14, 2010 had long attained finality after the Entry of Judgment was issued on May 26, 2015, following the denial of respondents' petition by Resolution dated March 16, 2015 and the absence of any motion for reconsideration. Once a judgment attains finality it becomes immutable and unalterable and may not be changed, altered, or modified in any way even if the modification were for the purpose of correcting an erroneous conclusion of fact or law; the doctrine rests on public policy and sound practice, since at the risk of occasional errors judgments must become final at some definite time fixed by law, otherwise there would be no end to litigations. The final Decision had already settled the nature of respondents' liability, finding that Skyrider Brokerage and Jong Briones were part of a conspiracy in the commission of fraud against the plaintiff and that Premiere Bank was liable for damages for allowing the deposit of the checks on a mere photocopy of a certification and for the deliberate and/or negligent act of its branch manager. Any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by that judgment and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. Assuming arguendo that the issue could be raised anew, the Court ruled in the negative. A loan or forbearance of money, goods, or credit describes a contractual obligation whereby a lender or creditor has refrained during a given period from requiring the borrower or debtor to repay the loan or debt then due and payable; forbearance refers to arrangements other than loan agreements where a person acquiesces to the temporary use of his money, goods, or credits pending the happening of certain events or the fulfillment of certain conditions. The case did not involve acquiescence to the temporary use of a party's money but the performance of a particular service: Skyrider Brokerage was to compute the customs duties and taxes and transmit payment to the Bureau of Customs; Security Bank was obligated not to encash the crossed manager's checks because it was neither an authorized agent bank of the Bureau of Customs nor authorized to receive payment of customs duties and taxes on its behalf; and BPI and Citibank were obligated not to release the amounts covered by checks not payable to the order of Security Bank. Applying the guidelines in Arco Pulp and Paper Co. vs. Lim, the rate of legal interest imposed upon respondents' obligation is 6% per annum at the time of judicial or extrajudicial demand by petitioners.
• Compounding of Interest: The payment of monetary interest is due only if there was an express stipulation for the payment of interest and the agreement for such payment was reduced into writing; and it is not enough that the payment of interest be stipulated and reduced to writing, for the purpose of imposing compounded interest, since the stipulation must also state the manner in which such interest should be earned. The records were bereft of any indication that the parties agreed to the imposition of compounding interest, nor was the RTC's decision forthcoming with details of the same; in default of any stipulation regarding the manner of earning the interest, simple interest accrues. Philippine American Accident Insurance vs. Flores held that where the judgment sought to be executed ordered the payment of simple "legal interest" only and said nothing about compound interest, the respondent judge who ordered the payment of compound interest went beyond the confines of his own judgment, which had become final; in default of any equivocal wording in the contract, the legal interest stipulated by the parties should be understood to be simple, not compounded. The presence of stipulated or conventional interest accrued at the time of judicial demand is required in order to impose compounded interest, and nowhere in the complaint was it alleged that the parties had stipulated that respondents' obligation would earn interest; where no interest had been stipulated by the parties, no accrued conventional interest could further earn interest upon judicial demand. Petitioners' reliance on NFF Industrial Corporation vs. G&L Associated Brokerage was misplaced: there the liability of G&L Associated Brokerage was based on a loan or forbearance of money, as evidenced by the filing of a complaint for sum of money, and the Court imposed legal interest compounded annually on appeal and before the decision had attained finality. Petitioners could not rely on the factual distinctions between that case and the instant one to argue that respondents' obligation was a loan or forbearance while simultaneously dismissing the same distinctions as irrelevant to the question of whether the interest should be simple or compounded.
• Interest on Costs of Suit: Costs, in their ordinary sense, contemplate the amount spent or expenses incurred in order to purchase or acquire a thing or service, usually in the form of either a price or a fee. As defined in the separate opinion of Justice Bernardo P. Pardo in GSIS vs. Bengson Commercial Buildings, Inc., costs are certain allowances authorized by statute to reimburse the successful party for expenses incurred in prosecuting or defending an action or special proceedings; they have their own legal meaning and import, being in the nature of incidental damages allowed to indemnify the successful party against the expense of asserting rights in court when the necessity of doing so was caused by another's breach of legal duty. The costs of filing a suit include, but are not limited to, those found under Sections 9, 10, and 11 of Rule 142 of the Revised Rules of Court. Costs of suit do not partake of the nature of a loan or forbearance of money, or even an obligation in a strict sense demandable by a party against another as defined under Article 1156 in relation to Article 1157 of the Civil Code; this is strengthened by the fact that courts can deny the award of costs in favor of the winning litigant even after proof of its payment, and reimbursement is strictly limited by the rules such that the prevailing party may recover only the costs provided thereunder and no other amount. Under Siga-an vs. Villanueva, the kinds of interest that may be imposed in a judgment are monetary interest, which is compensation fixed by the parties for the use or forbearance of money, and compensatory interest, which is imposed by law or by courts as penalty or indemnity for damages; the right to interest applies only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Costs of suit partake of neither and cannot earn legal interest under the rules.

• Finality and Immutability of Judgments — Once a judgment attains finality, it becomes immutable and unalterable and may not be changed, altered, or modified in any way, even if the modification were for the purpose of correcting an erroneous conclusion of fact or law. The doctrine is grounded on fundamental considerations of public policy and sound practice: at the risk of occasional errors, the judgments or orders of courts must become final at some definite time fixed by law, otherwise there would be no end to litigations, thus setting to naught the main role of courts of justice. The Court applied the doctrine against petitioners, holding that the Decision dated April 14, 2010 had long attained finality after the Entry of Judgment on May 26, 2015, and that the nature of respondents' obligation could no longer be reopened.
• Conclusiveness of Judgment — Any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. The Court invoked this bar to preclude petitioners from questioning anew the RTC's finding that respondents' liability arose from fraud and negligence.
• Loan or Forbearance of Money — A loan or forbearance of money, goods, or credit describes a contractual obligation whereby a lender or creditor has refrained during a given period from requiring the borrower or debtor to repay the loan or debt then due and payable; forbearance of money, goods, or credits refers to arrangements other than loan agreements where a person acquiesces to the temporary use of his money, goods, or credits pending the happening of certain events or the fulfillment of certain conditions. The Court held that the obligation in this case was one for the performance of a particular service — the computation and remittance of customs duties and taxes, and the refraining from encashing or releasing crossed manager's checks not payable to the collecting bank's order — and not an acquiescence to the temporary use of money.
• Guidelines on the Imposition of Legal Interest (Arco Pulp and Paper Co. vs. Lim) — The Court reiterated the three-part framework: (1) When the obligation breached consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due is that stipulated in writing, and the interest due shall itself earn legal interest from the time it is judicially demanded; in the absence of stipulation, the rate is 6% per annum (formerly 12% per annum), computed from default, i.e., from judicial or extrajudicial demand under Article 1169 of the Civil Code. (2) When an obligation not constituting a loan or forbearance of money is breached, interest on the damages awarded may be imposed at the discretion of the court at the rate of 6% per annum; no interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty, in which case interest runs from the time the claim is made judicially or extrajudicially, but where such certainty cannot be reasonably established at the time of demand, interest runs only from the date of the judgment; the actual base for computation is the amount finally adjudged. (3) When the judgment awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, is 6% per annum from such finality until satisfaction, this interim period being deemed by then equivalent to a forbearance of credit. The Court applied paragraph 2 to fix the interest on the actual damages from judicial or extrajudicial demand.
• Simple Interest Presumed Absent an Express Written Stipulation for Compounding — The payment of monetary interest is due only if there was an express stipulation for the payment of interest and the agreement for such payment was reduced into writing. It is not enough that the payment of interest be stipulated and reduced to writing; to impose compounded interest, the stipulation must also state the manner in which such interest should be earned. In default of any stipulation regarding the manner of earning the interest, simple interest accrues. The Court found no such stipulation in the records and accordingly rejected petitioners' claim for annually compounded interest.
• Costs of Suit Do Not Earn Interest — Costs are certain allowances authorized by statute to reimburse the successful party for expenses incurred in prosecuting or defending an action or special proceedings, and are in the nature of incidental damages allowed to indemnify the successful party against the expense of asserting rights in court when the necessity of doing so was caused by another's breach of legal duty. They do not partake of the nature of a loan or forbearance of money, or even an obligation in a strict sense demandable under Article 1156 in relation to Article 1157 of the Civil Code, and cannot earn either monetary or compensatory interest. The prevailing party may recover only the costs enumerated under Sections 9, 10, and 11 of Rule 142 of the Revised Rules of Court.
• Kinds of Interest (Siga-an vs. Villanueva) — The kinds of interest that may be imposed in a judgment are monetary interest, which is compensation fixed by the parties for the use or forbearance of money, and compensatory interest, which is imposed by law or by courts as penalty or indemnity for damages. The right to interest applies only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. The Court used this taxonomy to conclude that costs of suit fall outside both categories.
• Fallo Prevails Over the Body of the Decision; Exception for Clerical Error — As a rule, when there is a conflict between the dispositive portion or fallo of a decision and the opinion of the court contained in the text or body of the judgment, the former prevails over the latter. The Court recognized an exception where a careful reading of the entire decision reveals the intention of the court, in which case the omission in the fallo may be treated as the result of mere inadvertence or clerical error. The exception was applied to hold Jong Briones solidarily liable for exemplary damages notwithstanding her omission from the fallo of the April 14, 2010 Decision.

• "The doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice, and that, at the risk of occasional errors, the judgments or orders of courts must become final at some definite time fixed by law; otherwise, there would be no end to litigations, thus setting to naught the main role of courts of justice which is to assist in the enforcement of the rule of law and the maintenance of peace and order by setting justiciable controversies with finality." — This passage states the ratio for the threshold holding that the April 14, 2010 Decision could no longer be modified, foreclosing petitioners' attempt to recharacterize the source of respondents' obligation.
• "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 at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra-judicially (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." — This is the second of the three Arco Pulp guidelines, the controlling rule for obligations arising from fraud or negligence rather than from a loan or forbearance, and the basis for computing interest from extrajudicial demand in this case.
• "It is not enough that the payment of interest shall be stipulated and reduced into writing, for the purpose of imposing compounded interest, but should also state the manner in which such interest should be earned." — This sentence supplies the canonical formulation of the compounding-interest requirement and disposes of petitioners' second assigned error.
• "Costs are certain allowances authorized by statute to reimburse the successful party for expenses incurred in prosecuting or defending an action or special proceedings. These costs have their own legal meaning and import, for, as it was said, 'costs are in the nature of incidental damages allowed to the successful party to indemnify him[/her] against the expense of asserting his[her] rights in court, when the necessity of doing so was caused by other's breach of legal duty,'" — This definition, drawn from the separate opinion in GSIS vs. Bengson Commercial Buildings, Inc., anchors the holding that costs of suit are not the kind of award that can earn monetary or compensatory interest.

• Arco Pulp and Paper Co. vs. Lim, 737 Phil. 133 (2014) — Controlling precedent; the Court reiterated and applied its three-paragraph guidelines on the imposition of legal interest, using paragraph 2 to fix the 6% rate from judicial or extrajudicial demand.
• Philippine American Accident Insurance vs. Flores, 186 Phil. 563 (1980) — Followed; held that where the judgment ordered payment of simple "legal interest" only and said nothing about compound interest, an order for compound interest exceeded the confines of the final judgment, and that in default of equivocal wording the stipulated legal interest is simple, not compounded.
• NFF Industrial Corporation vs. G&L Associated Brokerage, 750 Phil. 69 (2015) — Distinguished; there the liability was based on a loan or forbearance of money and compounded interest was imposed on appeal before the decision attained finality, unlike the present case where liability arose from fraud and negligence and the judgment had already become final.
• Siga-an vs. Villanueva, 596 Phil. 760 (2009) — Cited; supplied the classification of interest into monetary interest and compensatory interest, and the rule that the right to interest applies only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.
• GSIS vs. Bengson Commercial Buildings, Inc., 426 Phil. 111 (2002) — Cited; the separate opinion of Justice Bernardo P. Pardo furnished the definition of costs of suit as statutory allowances in the nature of incidental damages.
• GSIS vs. Group Management Corporation, 666 Phil. 277 (2011) — Cited; source of the explanation of the doctrine of finality of judgment and its public-policy justification.
• Social Security Commission vs. Rizal Poultry and Livestock Association, 665 Phil. 198 (2011) — Cited; source of the rule on conclusiveness of judgment barring relitigation of rights, facts, or matters directly adjudicated or necessarily involved.
• S.C. Megaworld Construction and Development Corporation vs. Engr. Parada, 717 Phil. 752 (2013) — Cited; defined a loan or forbearance of money as a contractual obligation whereby the lender or creditor refrains during a given period from requiring repayment of a debt then due and payable.
• Estores vs. Spouses Supangan, 686 Phil. 86 (2012) — Cited; defined forbearance of money, goods, or credits as arrangements other than loan agreements where a person acquiesces to the temporary use of his money, goods, or credits pending the happening of certain events or fulfillment of certain conditions.
• Spouses Albos vs. Spouses Embisan, 748 Phil. 907 (2014) — Cited; established that payment of monetary interest is due only if there was an express stipulation for the payment of interest and the agreement was reduced into writing.
• David vs. Court of Appeals, 375 Phil. 177 (1999) — Cited; held that where no interest had been stipulated by the parties, no accrued conventional interest could further earn interest upon judicial demand.
• Sulpicio Lines, Inc. vs. Major Karaan, G.R. No. 208590, October 3, 2018 — Cited; basis for computing legal interest on moral and exemplary damages from the time of finality of the judgment, when the amount of damages has already been determined with finality.
• PH Credit Corporation vs. CA, 421 Phil. 821 (2001) — Cited; source of the rule that when there is a conflict between the dispositive portion or fallo of a decision and the opinion of the court in the body of the judgment, the former prevails.
• Heirs of Sagum vs. Heirs of Lagman, G.R. No. 241920, November 7, 2018 — Cited; authority for the immutability of a final and executory judgment.
• Nacar vs. Gallery Frames, G.R. No. 189871, 703 SCRA 439 — Cited by petitioners in support of their claim for 12% interest from extrajudicial demand until June 30, 2013 and 6% thereafter; the Court rejected its application by holding that the obligation did not arise from a loan or forbearance.

• Rule 45, 1997 Rules of Civil Procedure — The procedural vehicle for the petition, which assailed the RTC Orders dated February 19, 2016 and August 5, 2016; the Court denied the petition for lack of merit and affirmed both Orders.
• Article 1169, Civil Code — Governs default and fixes the point from which legal interest begins to run; cited in the Arco Pulp guidelines as the basis for computing interest from judicial or extrajudicial demand, which the Court applied by running interest on the actual damages from the extrajudicial demand of June 25, 2003.
• Article 1156, Civil Code — Defines an obligation as a juridical necessity to give, to do, or not to do; cited to show that costs of suit do not partake of the nature of an obligation in the strict sense and therefore cannot earn legal interest.
• Article 1157, Civil Code — Enumerates the sources of obligations (law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts); read with Article 1156 to exclude costs of suit from the category of demandable obligations that may bear interest.
• Rule 142, Sections 9, 10, and 11, Revised Rules of Court — Enumerate the costs recoverable by the prevailing party in the municipal courts, the Regional Trial Courts, and the Court of Appeals and Supreme Court, respectively; cited to establish that the recovery of costs is strictly limited to the items provided by the Rules and that no other amount, including interest, may be awarded.
• BSP Circular No. 799-13 — Fixed the legal interest rate at 6% per annum effective July 1, 2013; invoked by petitioners in their computation but ultimately subsumed in the Court's uniform application of the 6% rate from judicial or extrajudicial demand.

Peralta, C.J. (Chairperson), Caguioa, Lazaro-Javier, and Lopez, JJ., concur.