BIR Ruling [DA-145-01]

August 30, 2001 BIR RULING [DA-145-01] Ms. Lucina F. Galera Acting Assistant Commissioner Human Resource Development Service Dear Ms. Arguna : This refers to your request for an opinion on the following matters; in light of the Order of the Regional Trial Court, National Capital Region, Branch 147, Makati City, (RTC Makati, Br. 147 for brevity) "to release the full retirement benefits of the petitioner, Osmundo G. Umali, on Civil Case No. 94-3079 (S.C.G.R. No. 131124), with legal interest at the rate of 6% per annum", to wit: 1. The application of 6% legal interest, whether it be applied at once from the actual amount of retirement gratuity or computed on a compounded interest annually; 2. If compounded annually, the period of the 6% interest; and 3. If Mr. Umali is entitled to leave credits during his preventive suspension for the period from August 8 to October 6, 1994. In reply, please be informed of the following opinions: I. The application of 6% legal interest, whether it be applied at once from the actual amount of retirement gratuity or computed on a compounded interest annually ; The seeming confusion on the application of the legal interest primarily stemmed from the deafening silence of the Honorable Supreme Court's decision on the imposition of the legal interest in the case of " Osmundo G. Umali vs. Executive Secretary Teofisto T. Guingona Jr., et al ", G.R. No. 131124, the dispositive portion of which reads as follows: "WHEREFORE, in light of the foregoing effective and substantive supervening events, and in the exercise of its equity powers, the Court hereby GRANTS the petition. Accordingly, Administrative Order No. 152 is considered LIFTED, and petitioner can be allowed to retire with full benefits. No pronouncement as to costs." Upon the filing of a "Supplemental Motion to Implement Supreme Court Decision" by petitioner in the case of " Osmundo G. Umali vs. Executive Secretary Teofisto Guingona Jr., et al " before the RTC Makati, Br. 147, the Honorable Court issued an Order stating that: "WHEREFORE, in view of the foregoing, the Court hereby grants petitioner's supplemental motion ordering the Bureau of Internal Revenue to release the full retirement benefits of the petitioner, Osmundo G. Umali, on Civil Case No. 94-3079 (S.C.G.R. No. 131124), with legal interest at the rate of 6% per annum " (Emphasis supplied.) The said confusion seemed to have been partially answered from the foregoing Order by the pronouncement that the 6% legal interest may be imposed. Still, a thorough . review of the jurisprudence on the rules imposing the legal interest is appropriate to guide this Office in rendering a just and equitable opinion. The Honorable Supreme Court, in the seminal case of " Eastern Shipping Lines, Inc. vs. Hon. Court of Appeals and Mercantile Insurance Company, Inc ." (G.R. No. 97412, July 12, 1994), definitively laid down the rule on the imposition of the legal interest. Thus, "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 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 of 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." Furthermore, the Honorable Supreme Court cogently added that: "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. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 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 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 of 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 of 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. It appears from the narration of facts in the Umali case before the Honorable Supreme Court (supra) that no demand for the payment of the retirement benefits was ever made: Therefore, applying the said rules in the Eastern Shipping Lines, Inc. case, "the interest shall run from the date of the judgment of the court is made" or in the instant case, the legal interest of 6% should be imposed from date of judgment by the RTC, i.e., July 15, 1999 until it has become final and executory. The 12% interest per annum shall be imposed from such finality until its satisfaction. II. If compounded annually, the period of the 6% interest. Nowhere in the dispositive portion of the decision in the Umali case, both in the Supreme Court and Regional Trial Court level; is it stated that the application of the legal interest should be compounded annually. Thus, in the absence of a definitive pronouncement to that effect, the imposition of the legal interest should not be compounded annually. III. If Mr. Umali is entitled to leave credits during his preventive suspension for the period from August 8 to October 6, 1994. The case of " Porfirio Villamor et al. vs. The Hon. Arsenio H. Lacson et al .," (G.R. No. L-15945, November 28; 1964) is quite instructive in enlightening this Office to render an opinion on this matter. The Honorable Supreme Court held that: "It will be noted also that the modified decision did not exonerate the petitioners. And if we take into account the fact that they did not work during the period for which they are now claiming salaries; there can be no legal or equitable basis to order the payment of their salaries. The general proposition is that a public official is not entitled to any compensation if he has not rendered any service. As you work, so shall you earn . And even if we consider the punishment as suspension, before a public official or employee is entitled to payment of salaries withheld, it should be shown that the suspension was unjustified or that the employee was innocent of the charges proffered against him (F.B. Reyes vs. J. Hernandez, 71 Phil., 397), which is not the case in the instant proceedings." (Emphasis supplied..) A mere perusal of the decisions of the Honorable Supreme Court and Regional Trial Court would dictate that the preventive suspension of Atty. Umali was never assailed or questioned. Nor did the Decision exonerate Atty. Umali. In fact, the charges against Atty. Umali were dismissed, not on the merits, but by virtue of the letter sent to the Solicitor General informing the latter that the " the Bureau of Internal Revenue is no longer interested in pursuing the case against Atty. Osmundo Umali ", which the Honorable Supreme Court declared as effective and substantive supervening events that warranted. the lifting of Administrative Order No. 152. Parenthetically, applying the principle of "no work, no pay" and the doctrine laid down in the above-cited case, this Office opines and so holds that Atty. Umali is not entitled to leave credits during his preventive suspension for the period from August 8 to October 6, 1994 for the simple reason that during the said period, Atty. Umali presumably did not report for work. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group