CONDONATION OF PENALTIES DOES NOT APPLY TO THOSE ALREADY PAID PRIOR TO THE EFFECTIVITY OF THE CONDONATION LAW

Condonation is the creditor’s act of extinguishing an obligation by renunciation and the word “waive” is an abandonment or relinquishment of an existing legal right.

Thus, the Supreme Court (SC) held in the following case:

Villarica Pawnshop, Inc., HL Villarica Pawnshop, Inc., HRV Villarica Pawnshop, Inc. and Villarica Pawnshop, Inc. vs. Social Security Commission, Social Security System, et al.
G.R. No. 228087, January 24, 2018

Condonation of SSS penalties; Accrued penalties; Remission of debt; Waiver; Verba legis (plain meaning rule); Refund; Solution indebiti; Prospective application of statute;

Facts:

In 2009, Petitioners H. Villarica Pawnshop, Inc. HRV Villarica Pawnshop, Inc. and Villarica Pawnshop, Inc. (Villarica Pawnshop, et al.) paid their delinquent contributions and accrued penalties with the different branches of the SSS.

On January 7, 2010, Congress enacted R.A. No. 9903, otherwise known as the Social Security Condonation Law of 2009, which took effect on February 1, 2010. The said law offered delinquent employers the opportunity to settle, without penalty, their accountabilities or overdue contributions within six (6) months from the date of its effectivity.

Consequently, Villarica Pawnshop, et al. sent separate Letters to the different branches of the SSS seeking reimbursement of the accrued penalties, which they have paid in 2009, invoking Section 4 of R.A. No. 9903 and Section 2 (f) of the SSC Circular No. 2010-004 or the Implementing Rules and Regulations of R.A. No. 9903 (IRR), Villarica Pawnshop, et al. claimed that the benefits of the condonation program extend to all employers who have settled their arrears or unpaid contributions even prior to the effectivity of the law.

In a letter, the SSS-San Francisco Del Monte Branch denied petitioner Villarica Pawnshop, Inc.’s request for refund amounting to P3,119,400.15 stating that there was no provision under R.A. No. 9903 allowing reimbursement of penalties paid before its effectivity. In another letter HR V Villarica Pawnshop, Inc. was likewise informed that its application for the refund of the accrued penalty had been.denied because R.A. No. 9903 does not cover accountabilities settled prior to its effectivity.

In like manner, the applications for refund filed by Villarica Pawnshop, et al. H. Villarica Pawnshop, Inc. and HL Villarica Pawnshop, Inc. were both denied in separate letters for the same reason of being filed outside the coverage of R.A. No. 9903.

As a result, Villarica Pawnshop, et al. filed their respective Petitions before the SSC seeking reimbursement of the 3% per month penalties they paid in 2009 essentially claiming that they were entitled to avail of the benefits under R.A. No. 9903 by reason of equity because “one of the purposes of the law is to favor employers, regardless of the reason for the non-payment of the arrears in contribution” and that the interpretation of the SSS “is manifestly contrary to the principle that, in enacting a statute, the legislature intended right and justice to prevail.”

In its Answer, the SSS prayed for the dismissal of the petitions for utter lack of merit. It maintained that Villarica Pawnshop, et al. were not entitled to avail of the condonation program under R.A. No. 9903 because they were not considered delinquent at the time the law took effect in 2010. There was nothing more to condone on the part of Villarica Pawnshop, et al. for they have settled their obligations even before the enactment of the law. The SSS explained that the term “accrued penalties” had been properly defined as unpaid penalties under the IRR and, considering that laws granting condonation constitute acts of benevolence on the part of the State, they should be strictly construed against the applicant.

SSC Ruling:

The SSC denied all the petitions for lack of merit.

It ruled that Villarica Pawnshop, et al. were not entitled to the benefits of the condonation program under R.A. No. 9903 in view of the full payment of their unpaid obligations prior to the effectivity of the law on February 1, 2010. As Villarica Pawnshop, et al. did not have unpaid contributions at the time the law took effect, the SSC held that there could be no remission or refund in their favor.

Villarica Pawnshop, et al. filed a motion for reconsideration but it was denied by the SSC. Undeterred, Villarica Pawnshop, et al. appealed before the CA.

CA Ruling:

The CA affirmed the ruling of the SSC.

The CA held that the intent of the legislature in enacting R.A. No. 9903 was the remission of the three percent (3%) per month penalty imposed upon delinquent contributions of employers as a necessary consequence of the late payment or non-remittance of SSS contributions.

The CA found that the IRR of R.A. No. 9903 used the word “unpaid” to emphasize the accrued penalty that may be waived therein, thus, it presupposes that there was still an outstanding obligation at the time of the effectivity of the law, which may be extinguished through remission. It highlighted that lawmakers did not include within the sphere of R.A. No. 9903 those employers whose penalties have already been paid prior to its effectivity. The CA added that it would be absurd for obligations that have already been extinguished to be subjected to condonation.

The CA affirmed the ruling of the SSC. It held that the intent of the legislature in enacting R.A. No. 9903 was the remission of the three percent (3%) per month penalty imposed upon delinquent contributions of employers as a necessary consequence of the late payment or non-remittance of SSS contributions. The CA found that the IRR of R.A. No. 9903 used the word “unpaid” to emphasize the accrued penalty that may be waived therein, thus, it presupposes that there was still an outstanding obligation at the time of the effectivity of the law, which may be extinguished through remission.

The CA highlighted that lawmakers did not include within the sphere of R.A. No. 9903 those employers whose penalties have already been paid prior to its effectivity. The CA added that it would be absurd for obligations that have already been extinguished to be subjected to condonation.

Villarica Pawnshop, et al. moved for reconsideration but it was denied by the. Hence, the petition before the SC.

Issue/s:

Whether or not a penalty that was paid prior to the effectivity of the law on condonation should be refunded to the employer

Whether or not delinquent contributions and penalties may be paid separately

Whether or not there is a violation of the equal protection clause in that the employers who are delinquent at the time of effectivity of the condonation law are entitled to condonation while those who have are not

SC Ruling:

The SC denied the petition.

The SC, citing Sections 2 and 4 of the R.A. No. 9903, states that any employer who is delinquent or has not remitted all contributions due and payable to the Social Security System (SSS), may within six (6) months from the effectivity of the law remit said contributions or submit a proposal to pay the same in installments. That for reason of equity, employers who settled arrears in contributions before the effectivity of this Act shall likewise have their accrued penalties waived.

Digest of Critical Supreme Court Decisions on Labor Cases

Further, the SC cited Sections 1 and 2 of the IRR of R.A. No. 9903 which defines “accrued penalty” as referring to the unpaid three percent (3%) penalty imposed upon any delayed remittance of contribution in accordance with Section 22 (a) of R.A. No. 1161. Employer may avail of the program if he is delinquent or has not remitted all contributions due and payable to the SSS, including those who, before the effectivity of the condonation law, have settled all contributions but with accrued penalty.

Under R.A. No. 9903 and its IRR, an employer who is delinquent or has not remitted all contributions due and payable to the SSS may avail of the condonation program provided that the delinquent employer will remit the full amount of the unpaid contributions or would submit a proposal to pay the delinquent contributions in installment within the six (6)-month period set by law.

Under Section 4 of R.A. No. 9903, once an employer pays all its delinquent contributions within the six-month period, the accrued penalties due thereon shall be deemed waived. In the last proviso thereof, those employers who have settled their delinquent contributions before the effectivity of the law but still have existing accrued penalties shall also benefit from the condonation program. In that situation, there is still something to condone because there are existing accrued penalties at the time of the effectivity of the law. Section 1 (d) of the IRR defines accrued penalties as those that refer to the unpaid three percent (3%) penalty imposed upon any delayed remittance of contribution.

Accordingly, R.A. No. 9903 covers those employers who (1) have existing delinquent contributions and/or (2) have accrued penalties at the time of its effectivity. The SC explained that there is nothing in R.A. No. 9903, particularly Section 4 thereof, that benefits an employer who has settled their delinquent contributions and/or their accrued penalties prior to the effectivity of the law. Once an employer pays all his delinquent contributions and accrued penalties before the effectivity of R.A. No. 9903, it cannot avail of the condonation program because there is no existing obligation anymore. It is the clear intent of the law to limit the benefit of the condonation program to the delinquent employers.

The SC found that employers who have paid their unremitted contributions and already settled their delinquent contributions as well as their corresponding penalties before R.A. No. 9903’s effectivity do not have the right to be refunded of the penalties already paid.

The “plain meaning rule” or verba legis in statutory construction enjoins that if the statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without interpretation. This rule of interpretation is in deference to the plenary power of Congress to make, alter and repeal laws as this power is an embodiment of the People’s sovereign will. Accordingly, when the words of a statute are clear and unambiguous, courts cannot deviate from the text of the law and resort to interpretation lest they end up betraying their solemn duty to uphold the law and worse, violating the constitutional principle of separation of powers.

Concomitantly, condonation or remission of debt is an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is essentially gratuitous for no equivalent is received for the benefit given.

Relatedly, waiver is defined as a voluntary and intentional relinquishment or abandonment of a known existing legal right, advantage, benefit, claim or privilege, which except for such waiver the party would have enjoyed. The voluntary abandonment or surrender, by a capable person, of a right known by him to exist, with the intent that such right shall be surrendered and such person forever deprived of its benefit; or such conduct as warrants an inference of the relinquishment of such right or the intentional doing of an act inconsistent with claiming it.

On the other hand, refund is an act of giving back or returning what was received. In cases of monetary obligations, a claim for refund exists only after the payment has been made and, in the act of doing so, the debtor either delivered excess funds or there exists no obligation to pay in the first place. This right arises either by virtue of solutio indebiti as provided for in Articles 2154 to 2163 of the Civil Code or by provision of another positive law, such as tax laws or amnesty laws.

For the SC, a plain reading of Section 4 of R.A. No. 9903 shows that it does not give employers who have already settled their delinquent contributions as well as their corresponding penalties the right to a refund of the penalties paid. What was waived here was the amount of accrued penalties that have not been paid prior to the law’s effectivity-it does not include those that have already been settled.

The words “condoned”, “waived” and “accrued” are unambiguous enough to be understood and directly applied without any resulting confusion. The word “condonation” is the creditor’s act of extinguishing an obligation by renunciation and the word “waive” is an abandonment or relinquishment of an existing legal right. On the other hand, the term “accrue” in legal parlance means “to come into existence as an enforceable claim.”

Thus, the phrases “shall be condoned” and “shall likewise have their accrued penalties waived” under Section 4 of the R.A. No. 9903 can only mean that, at the time of its effectivity, only existing penalties may be extinguished or relinquished. No further interpretation is necessary to clarify the law’s applicability.

Statutes are generally applied prospectively unless they expressly allow a retroactive application. It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly declared or is necessarily implied from the language used. Absent a clear contrary language in the text and, that in every case of doubt, the doubt will be resolved against the retroactive operation of laws.

R.A. No. 9903 does not provide that, prior to its effectivity, penalties already paid are deemed condoned or waived. What Section 2 of the law provides instead is an availment period of six (6) months after its effectivity within which to pay the delinquent contributions for the existing and corresponding penalties to be waived or condoned. This only means that Congress intends R.A. No. 9903 to apply prospectively only after its effectivity and until its expiration.

Here, the State stands to lose its resources in the form of receivables whenever it condones or forgoes the collection of its receivables or unpaid penalties. Since a loss of funds ultimately results in the Government being deprived of its means to pursue its objectives, all monetary claims based on condonation should be construed strictly against the applicants. Citing Social Security System vs. Commission on Audit the SC explained that charges against the trust fund with the SSS be strictly scrutinized for every lawful and judicious opportunity to keep it intact and viable in the interest of enhancing the welfare of their true and ultimate beneficiaries.

The SC chose to uphold and abide by the canon of interpretation against applicants of the benefits of R.A. No. 9903 as a recognition to the constitutional policies of freeing the people from poverty through policies that provide adequate social services58 and affording full protection to labor. It is consistent with the congressional intent of placing a primary importance in helping the SSS increase its funds through stimulating cash inflows by encouraging delinquent employers to settle their accountabilities. Thus, R.A. No. 9903 shall be understood as not to include a refund of penalties paid before its effectivity.

The SC also adopted the position of the SSC that there is no provision in RA 8282, as amended, nor in any SSS Circular or Office Order that requires employers to settle their arrears in contributions simultaneously with payment of the penalty. Citing Section 4 (c) of the R.A. No. 8282 the SC held that the SSC has the power and duty to compromise or release, in whole or in part, any interest, penalty or any civil liability to SSS in connection with the investments authorized under Section 26 of the law, under such terms and conditions as it may prescribe and approved by the President of the Philippines.

The SC held that there is a substantial distinction between employers who paid prior and subsequent to R.A. No. 9903’s effectivity. The equal protection clause guarantees that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. For the SC, the concept of equal protection does not require a universal application of the laws to all persons or things without distinction. What it simply requires is equality among equals as determined according to a valid classification.

The equal protection simply requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. It does not forbid discrimination as to things that are different. Neither is it necessary that the classification be made with mathematical nicety. Congress is given a wide leeway in providing for a valid classification especially when social or economic legislation is at issue. Hence, legislative classification may properly rest on narrow distinctions, for the equal protection guaranty does not preclude the legislature from recognizing degrees of evil or harm, and legislation is addressed to evils as they may appear.

Villarica Pawnshop, et al. have already paid not only their delinquent contributions but also their corresponding penalties before the enactment and effectivity of R.A. No. 9903. Because of this observation, Villarica Pawnshop, et al. cannot anymore be considered as “delinquent” under the purview of R.A. No. 9903 and are not within the class of “delinquent employers.” Simply put, they are not similarly situated with other employers who are delinquent at the time of the law’s effectivity. Accordingly, Congress may treat Villarica Pawnshop, et al. differently from all other employers who may have been delinquent.

As final note, the SC held that settling the contributions in arrears within the availment period only entitles delinquent employers to a remission of their corresponding accrued and outstanding penalties-not a refund of the penalties which have already been paid. There is nothing in R.A. No. 9903 which explicitly imposes or even implicitly recognizes a positive or natural obligation on the part of the SSS to return the penalties which have already been settled before its effectivity. It is absurd to revive obligations that have already been extinguished by payment or performance just to be re-extinguished by condonation or remission so that it may create a resulting obligation on the basis of solutio indebiti. More importantly, there is no violation of the equal protection clause because there is a substantial distinction in the classes of employers. Therefore, the Court deems it fitting to deny Villarica Pawnshop, et al.’s claim for refund for lack of substantial and legal basis.