Title
Garcia vs. Social Security Commission Legal and Collection
Case
G.R. No. 170735
Decision Date
Dec 17, 2007
A director of a financially troubled corporation was held personally liable for unremitted SSS contributions and penalties under the Social Security Law, despite claims of non-involvement in daily operations.

Case Summary (G.R. No. 170735)

Relevant Dates and Applicable Law

The period covered by the unremitted contributions was August 1980 to December 1984. The Social Security Law, specifically Sections 18, 19, 22, and 28(f) of Republic Act No. 8282 (the Social Security Law as amended), governed the obligations and liabilities for remittance of SSS contributions. The case was decided under the 1987 Philippine Constitution, with the Supreme Court rendering its final decision on December 17, 2007.

Background and Proceedings Before the SSS Commission

Impact Corporation experienced financial difficulties starting in 1978, leading to labor unrest in 1980 and eventual suspension of payments petition filed with the Securities and Exchange Commission (SEC) in 1983, which was later dismissed. Strike actions were certified for compulsory arbitration in 1985, noting the company’s inability to pay wages and remit SSS contributions due to cash liquidity issues. The SSS sued for collection of unremitted contributions via Social Security Commission (SSC) Case No. 10048, initially naming Impact Corporation. Later, in 1995, the directors were also impleaded as respondents due to the corporation's dissolution and lack of assets to satisfy liabilities.

Petitioner’s Position and Defense

Garcia contended she ceased participation in Impact Corporation’s management and stockholding in 1982 and denied being liable for the corporation’s unpaid SSS contributions beyond the extent of her stock subscription, which was fully paid. She argued that Section 28(f) of the Social Security Law only made managing heads liable for penalties but not for actual unpaid contributions. Other defenses included claims of cessation of the corporation’s operations and fortuitous economic losses beyond her control.

Social Security Commission and Court of Appeals Rulings

The Social Security Commission ruled that petitioner, as director, was liable for the unremitted contributions and corresponding penalties based on Sections 22 and 28(f) of the Social Security Law. The SSC found no merit in petitioner’s defense that she ceased being a director in 1982, citing waiver for failure to timely raise such defense and emphasizing the continuing liability for contributions during the period in question. The Court of Appeals affirmed this decision in 2005, holding that directors, even if not managing heads, may be held liable for corporate obligations involving unremitted SSS contributions and penalties under Section 28(f).

Core Legal Issue

Whether petitioner, as the only surviving director, could be held solely liable for Impact Corporation’s unpaid and unremitted SSS contributions and penalties.

Statutory Interpretation—Section 28(f) and Related Provisions

Section 28(f) of the Social Security Law states that the managing head, directors, or partners of a juridical entity committing an offense under the law are liable to the corresponding penalties. Petitioner controversially argued that this liability extends only to penalties, not to unpaid SSS contributions themselves. The Supreme Court rejected this narrow and literal interpretation, reasoning that laws must be read in context and in the light of their overall purpose, which is to protect employee benefits and ensure remittance of contributions.

The Court explained that Section 22(a) imposes an obligation on every employer to deduct and remit contributions timely, with penalties imposed for late remittance. The corporate officers’ liability under Section 28(f) includes both the principal unpaid contributions and penalties, especially when a corporation ceases to exist or cannot satisfy its debts, thereby warranting personal liability to ensure enforcement of the law.

Corporate Law Principles on Liability of Directors

Under Section 31 of the Corporation Code, directors are generally not personally liable for corporate obligations unless they act with gross negligence, bad faith, or participate in unlawful corporate acts. However, the Social Security Law imposes a separate and additional layer of personal liability on managing heads or directors for violations relating to non-remittance of contributions.

The Court found that Section 28(f) of the Social Security Law explicitly holds directors liable regardless of whether they are managing heads, and the petitioner's application of ejusdem generis (restricting the term “directors” to only “managing directors”) was unfounded.

Exception to Separate Juridical Personality Doctrine

The Court reiterates the legal fiction of separate corporate personality but emphasizes exceptions where the corporate veil may be pierced, particularly to prevent injustice, fraud, or evasion of lawful obligations. Here, the dissolution of Impact Corporation and its inability to pay justified imposing liability on the surviving director to protect the rights of employees and beneficiaries.

Petitioner’s Additional Defenses and Court’s Rejection

Petitioner’s claim of cessation of business and non-participation in daily management was rebutted by the corporation’s own petition to the SEC stating it was an ongoing and viable enterprise during the relevant period. The Court upheld the principle that liability attaches for contributions deducted from employees’ salaries and not remitted, regardless of economic difficulties or fortuitou

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