Kristine Marciana L.

Laplana Agrarian Law and Social Legislation (Tue,8-10 pm)

1. Tan v. Ballena, G.R. No. 168111, July 4, 2008

Facts:

This is an appeal before the Supreme Court regarding a decision of the Court of Appeals
dated 30 September 2004 and 9 May 2005, respectively, in CA-G.R. SP No. 79101. The
appellate court's Decision set aside the Resolutions of the Department of Justice (DOJ) dated
19 March 2002 and 9 August 2002, and reinstated the Final Resolution5 of the Provincial
Prosecutor in I.S. Nos. 01-03-1007, 01-04-1129 and 01-04-1130, which ordered the filing of two
(2) informations against petitioners Antonio Tan, Danilo Domingo and Robert Lim. The appellate
court's Resolution denied petitioners' Motion for Reconsideration.

Petitioners Antonio Tan, Danilo Domingo and Robert Lim were officers of Footjoy
Industrial Corporation (Footjoy), a domestic corporation engaged in the business of
manufacturing shoes and other kinds of footwear, prior to the cessation of its operations
sometime in February 2001.

On 19 March 2001, respondent Amelito Ballena and one hundred thirty-nine (139) other
employees of Footjoy, filed a Joint Complaint-Affidavit before the Office of the Provincial
Prosecutor of Bulacan against the company and petitioners Tan and Domingo in their capacities
as owner/president and administrative officer, respectively. Ballena and the other employees
alleged that that the company did not regularly report the respondent employees for
membership at the Social Security System (SSS) and that it likewise failed to remit their SSS
contributions and payment for their SSS loans, which were already deducted from their wages
in violation of Sections 9, 10, 22 and 24, paragraph (b) of Republic Act No. 1161, as amended
by Republic Act No. 8282;9 as well as Section 28, paragraphs (e), (f), and (h) thereof, in relation
to Article 315 of the Revised Penal Code. Further, the herein petitioners admitted their fault and
pleaded good faith and lack of criminal liability.

The Assistant Provincial Prosecutor found probable cause and filed an information with
violations of the above-mentioned sections of the SSS Law but dismissed the charge for the
violation of the RPC as such is deemed included in the SSS Law. However, the information was
ordered to be dismissed the Department of Justice for lack of probable cause. It was also
dismissed by the CA on appeal for not complying with the verification and certification
requirement as not all original petitioners signed the same. The decision was subsequently
reversed upon Motion for Reconsideration thus this petition.

Issue and Ruling:

Whether or not the not signing of the all original petitioners in the certification and
verification justifiably caused the dismissal of the case?

No. It is a well-settled principle that rules of procedure are mere tools designed to facilitate
the attainment of justice. Their strict and rigid application, which would result in technicalities
that tend to frustrate rather than promote substantial justice, must always be eschewed. On the
requirement of a certification of non-forum shopping, the well-settled rule is that all the
petitioners must sign the certification of non-forum shopping. The reason for this is that the
persons who have signed the certification cannot be presumed to have the personal knowledge
of the other non-signing petitioners with respect to the filing or non-filing of any action or claim
the same as or similar to the current petition. The rule, however, admits of an exception and that
is when the petitioners show reasonable cause for failure to personally sign the certification. The
petitioners must be able to convince the court that the outright dismissal of the petition would
defeat the administration of justice.In the case at bar, counsel for the respondents disclosed that
most of the respondents who were the original complainants have since sought employment in
the neighboring towns of Bulacan, Pampanga and Angeles City. Only the one hundred eighty
(180) signatories were then available to sign the amended Petition for Certiorari and the
accompanying verification and certification of non-forum shopping. Considering the total number
of respondents in this case and the elapsed period of almost two years since the filing of the
Joint Complaint Affidavit on 19 March 2001 and the filing of the amended petition on 13 March
2003, we hold that the instant case sufficiently falls under the exception to the aforesaid rule.
Thus, the Court of Appeals cannot be said to have erred in overlooking the above procedural
error.

Whether or not lack of criminal culpability and good faith are valid defences in violations of
the SSS Law?

No. As held by the Court of Appeals, the claims of good faith and absence of criminal intent
for the petitioners' acknowledged non-remittance of the respondents' contributions deserve
scant consideration. The violations charged in this case pertain to the SSS Law, which is a
special law. As such, it belongs to a class of offenses known as mala prohibita.

The law has long divided crimes into acts wrong in themselves called acts mala in se; and
acts which would not be wrong but for the fact that positive law forbids them, called acts mala
prohibita. This distinction is important with reference to the intent with which a wrongful act is
done. The rule on the subject is that in acts mala in se, the intent governs; but in acts mala
prohibita, the only inquiry is, has the law been violated? When an act is illegal, the intent of the
offender is immaterial.

Thus, the petitioners' admission in the instant case of their violations of the provisions of the
SSS Law is more than enough to establish the existence of probable cause to prosecute them
for the same.

2. Garcia v. Social Security commission Legal and Collection, Social Security

System, G.R. No. 170735, December 17, 2007

Facts:

This is petition for review on Certiorari under Rule 45 of the Rules of Court is assailing the 2
June 2005 Decision1 and 8 December 2005 Resolution2 both of the Court of Appeals in CA-
G.R. SP No. 85923. the appellate court affirmed the --- Order and --- Resolution both of the
Social Security Commission (SSC) in SSC Case No. 10048, finding Immaculada L. Garcia
(Garcia), the sole surviving director of Impact Corporation, petitioner herein, liable for
unremitted, albeit collected, SSS contributions.

Petitioner is one of the directors of Impact Corporation, a corporation engaged in the

business of manufacturing aluminum tube containers and operated two factories. One was a
"slug" foundry-factory located in Cuyapo, Nueva Ecija, while the other was an Extrusion Plant in
Cainta, Metro Manila, which processed the "slugs" into aluminum collapsible tubes and similar
containers for toothpaste and other related products. The corporation has financial problems in
1978.

On 3 July 1985, the Social Security System (SSS), through its Legal and Collection Division
(LCD), filed a case before the SSC for the collection of unremitted SSS premium contributions
withheld by Impact Corporation from its employees. The SSC directed the System to check if
Impact Corporation had leviable properties to which the investigating team of respondent SSS
manifested that the Impact Corporation had already been dissolved and its assets disposed of.
The petitioner was also held liable as a director, she argued that she is just a stockholder thus
this petition.

Issue and Ruling:

Whether or not petitioner should be held liable?

 Yes. Section 28(f) of the Social Security Law provides the following: (f) If the act or omission
penalized by this Act be committed by an association, partnership, corporation or any other
institution, its managing head, directors or partners shall be liable to the penalties provided in
this Act for the offense. Section 28(f) of the Social Security Law imposes penalty on: (1) the
managing head; (2) directors; or (3) partners, for offenses committed by a juridical person. The
said provision does not qualify that the director or partner should likewise be a "managing
director" or "managing partner." The law is clear and unambiguous. Petitioner cannot use as
defense the non-liability of direction under the Corporation Law as the SSS Law is an exception
as provided in Section 28(f) of the Social Security Law.

3. Nely T. Co v. People of the Philippines, Social Security System, Office of the

Solicitor General and Spouses Jose and Mercedes Lim, G.R. No. 160265, July 13,
2009

Facts:

This is a petition for review on certiorari1 of the May 15, 2003 and October 6, 2003
resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 69510.

An Information charging petitioner Nely T. Co with violation of Section 22(d) in relation to

Section 28(e) of RA3 1161on the basis of the complaint of respondent spouses Jose and
Mercedes Lim, who claimed to be petitioner’s employees. Petitioner was accused of failing to
remit the compulsory contributions of respondent spouses to respondent Social Security System
(SSS). A motion to quash was filed by petitioner arguing that the facts alleged did not constitute
an offense as the respondents are not her employees as held in NLRC case involving the same
parties.

Issue and Ruling:

Whether or not the herein respondent can seek coverage of the SSS Law even without an
employer-employee relationship?

No. Well-settled is the rule that the mandatory coverage of RA 1161, as amended, is
premised on the existence of an employer-employee relationship. The RTC committed grave
abuse of discretion when it refused to grant petitioner’s motion to quash the Information. Simply
said, any conviction for violation of the SSS law based on the erroneous premise of the
existence of an employer-employee relationship would be a transgression of petitioner’s
constitutional rights. Further, the final and executor NLRC decision (to the effect that respondent
spouses were not the employees of petitioner) was binding on this criminal case for violation of
RA 1161, as amended pursuant to the principle of res judicata.

4. Mendoza v. People, G.R. No. 183891, October 19, 2011

Facts:

Romarico Mendoza (petitioner) is a company boss/employer convicted for violating a special

law known as the Social SecurityCondonation Law of 2009 for non-remittance of the Social
Security Service (SSS) contributions to his employees. The offense is criminal in nature.
Nevertheless, Mendoza admitted his fault, as he said, he acted in good faith. The herein
respondent also contended that as alleged in the information he is only a proprietor, not a
director so he cannot be held personally liable pursuant to Section 28(f) of the Social Security
Law which imposes penalty on: (1) the managing head; (2) directors; or (3) partners, for
offenses committed by a juridical person.

Issue and Ruling:

Whether or not petitioner can be held liable even if he is only tagged as a proprietor?
 Yes. The term "managing head" in Section 28(f) is used, in its broadest connotation, not to
any specific organizational or managerial nomenclature. To heed petitioner’s reasoning would
allow unscrupulous businessmen to conveniently escape liability by the creative adoption of
managerial titles. While the Court affirms the appellate court’s decision, there is a need to
modify the penalty imposed on petitioner. The appellate court affirmed the trial court’s imposition
of penalty on the basis of Sec. 28(e) of the Social Security Act which reads:

Sec. 28. Penal Clause. ─ (e) Whoever fails or refuses to comply with the provisions of this
Act or with the rules and regulations promulgated by the Commission, shall be punished by a
fine of not less than Five thousand pesos (P5,0000.00) nor more than Twenty thousand pesos
(P5,000.00) nor more than Twenty thousand pesos (P20,000.00), or imprisonment for not less
than six (6) years and one (1) day nor more than twelve (12) years or both, at the discretion of
the court. x x x

The proper penalty for this specific offense committed by petitioner is, however, provided in
Section 28 (h) of the same Act which reads:

Sec. 28. Penal Clause – (h) Any employer who after deducting the monthly contributions or
loan amortizations from his employee’s compensation, fails to remit the said deductions to the
SSS within thirty (30) days from the date they became due shall be presumed to have
misappropriated such contributions or loan amortizations and shall suffer the penalties provided
in Article Three hundred fifteen [Art. 315] of the Revised Penal Code.

Decision of the Court of Appeals affirmed.

5. Chua v. CA, G.R. No. 125837, October 6, 2004.

This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No.
38269 dated 06 March 1996, and its Resolution dated 30 July 1996 denying petitioner’s Motion
for Reconsideration,2 affirming the Order of the Social Security Commission (SSC) dated 1
February 19953 which held that private respondents were regular employees of the petitioner
and ordered petitioner to pay the Social Security System (SSS) for its unpaid contributions, as
well as penalty for the delayed remittance thereof.

On August 20, 1985, private respondents Andres Paguio, Pablo Canale, Ruel Pangan,
Aurelio Paguio, Rolando Trinidad, Romeo Tapang and Carlos Maliwat filed a petition with the
SSC for SSS coverage and contributions against petitioner Reynaldo Chua, owner of Prime
Mover Construction Development, claiming that they were all regular employees of the
petitioner in his construction business.

Private respondents alleged that petitioner dismissed all of them without justifiable grounds,
and without notice to them and to the then Ministry of Labor and Employment. They further
alleged that petitioner did not report them to the SSS for compulsory coverage in flagrant
violation of the Social Security Act.

Petitioner claimed that private respondents were not regular employees, but project
employees whose work had been fixed for a specific project or undertaking the completion of
which was determined at the time of their engagement. This being the case, he concluded that
said employees were not entitled to coverage under the Social Security Act. Petitioner also
claimed that the case has prescribed. The Court of Appeals ruled in favor of the private
respondents.

Issue and Ruling:

Whether or not the private respondents are entitled to compulsory SSS coverage.

Yes. Well-settled is the rule that the mandatory coverage of Republic Act No. 1161, as
amended, is premised on the existence of an employer-employee relationship, the essential
elements of which are: (a) selection and engagement of the employee; (b) payment of wages;
(c) the power of dismissal; and (d) the power of control with regard to the means and methods
by which the work is to be accomplished, with the power of control being the most determinative
factor. The existence of an employer-employee relationship between the parties can easily be
determined by the application of the “control test.”

It is clear that private respondents are employees of petitioner, the latter having control over
the results of the work done, as well as the means and methods by which the same were
accomplished. Suffice it to say that regardless of the nature of their employment, whether it is
regular or project, private respondents are subject of the compulsory coverage under the SSS
Law, their employment not falling under the exceptions provided under Section 8(j) of the Social
Security Act. In addition, private respondents’ right to file their claim had not yet prescribed at
the time of the filing of their petition. Republic Act No. 1161, as amended, prescribes a period of
twenty (20) years, from the time the delinquency is known or assessment is made by the SSS,
within which to file a claim for non-remittance against employers.

6. Nagusara vs. NLRC, G.R. No. 117936-37. May 20, 1998

Facts:

This is a petition to annul he resolution of the National Labor Relations Commission (NLRC)
dated December 27, 1991 and its order dated September 29, 1994 in NLRC NCR Case No, 12-
7287-82 & 12-7481-82.

On December 31, 1982, petitioners filed a complaint against respondent Lorenzo Dy for
illegal dismissal, unfair labor practice and non-payment of overtime pay, legal holiday pay and
premium pay for holiday and rest day which was decided in favour of the petitioners stating that
they were illegally dismissed and ordered respondent Dy to reinstate them. The decision also
awarded to petitioners backwages and other money claims.

Respondent Dy assailed the decision contending that there was no employer-employee

relationship and that respondent Amurao was the real employer of petitioners because he was
the one who hired them in fulfillment of his obligation to provide manpower for respondent Dys
construction project thus they cannot be held liable.

Issue and Ruling:

Whether or not there is an employer-employee relationship?

Yes. The Court held that the sub-contract between respondent Dy and respondent Amurao
was merely a subterfuge to avoid respondent Dys obligations to petitioners. The records show
that respondent Amurao was not a legitimate job contractor engaged in the business of
contracting out services to clients. A legitimate job contractor is one who: (1) carries on an
independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of
his employer or principal in all matters connected with the performance of the work except as to
the results thereof; and (2) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.[15] Respondent Amurao did not satisfy both requirements. It appears, instead, that
respondent Amurao was also an employee of respondent Dy who was tasked to screen and to
supervise the workers at respondent Dys construction project at Solmac. It is clear from the
foregoing that petitioners were employees of respondent Dy.
We reject respondent Amuraos submission that petitioners were project employees. The
principal test for determining whether an employee is a project employee or a regular employee
is whether or not the project employee was assigned to carry out a specific project or
undertaking, the duration and scope of which were specified at the time the employee was
engaged for that project.[16] In the case at bar, it does not appear that respondent Dy informed
petitioners at the time of their engagement about the specific project or undertaking for which
they were hired, as well as the duration and scope of such project. Besides, the records show
that petitioners, as carpenters, were performing activities necessary or desirable in respondent
Dys business of making steel frames, windows, doors and other construction works thus
considered as regular employees under Article 280 of the Labor Code.

7. Dycaico v. SSS, G.R. No. 161357, November 30, 2005

Facts:

Bonifacio S. Dycaico became a member of the SSS on January 24, 1980. In his self-employed
data, he named the petitioner, Elena P. Dycaico, and their 8 children as his beneficiaries. At that
time, Bonifacio and Elena lived together as husband and wife without the benefit of marriage.

In June 1989, Bonifacio was considered retired and began receiving his monthly pension from
the SSS. He continued to receive the monthly pension until he passed away on June 19, 1997.
A few months prior to his death, however, Bonifacio married the petitioner on January 6, 1997.

Shortly after Bonifacios death, the petitioner filed with the SSS an application for survivors
pension. Her application, however, was denied on the ground that under the Social Security
Law she could not be considered a primary beneficiary of Bonifacio as of the date of his
retirement.

The petitioner filed with the SSC a petition alleging that the denial of her survivors pension was
unjustified. She contended that Bonifacio designated her and their children as primary
beneficiaries in his SSS Form RS-1 and that it was not indicated therein that only legitimate
family members could be made beneficiaries.

The SSC promulgated its Resolution affirming the denial of the petitioners claim. The SSC
refuted the petitioner’s contention that primary beneficiaries need not be legitimate family
members by citing the definitions of primary beneficiaries and dependents.

Aggrieved, the petitioner filed with the CA a petition for review of the SSCs February 6, 2002
Resolution. In the assailed Decision, the appellate court dismissed the petition. The CA
declared that since the petitioner was merely the common-law wife of Bonifacio at the time of
his retirement, his designation of the petitioner as one of his beneficiaries in the SSS Form RS-1
in 1980 is void. The CA further observed that Bonifacios children with the petitioner could no
longer qualify as primary beneficiaries because they have all reached 21 years of age.

Issue and Ruling:

Whether or not Dycaico can be considered as a beneficiary.

Yes. As illustrated by the petitioners case, the proviso as of the date of his retirement in
Section 12-B(d) of Rep. Act No. 8282 which qualifies the term primary beneficiaries results in
the classification of dependent spouses as primary beneficiaries into two groups:

(1) Those dependent spouses whose respective marriages to SSS members were contracted
prior to the latters retirement; and
(2) Those dependent spouses whose respective marriages to SSS members were contracted
after the latters retirement.

Underlying these two classifications of dependent spouses is that their respective marriages are
valid. In other words, both groups are legitimate or legal spouses. The distinction between them
lies solely on the date the marriage was contracted. The petitioner belongs to the second group
of dependent spouses, i.e., her marriage to Bonifacio was contracted after his retirement. As
such, she and those similarly situated do not qualify as primary beneficiaries under Section 12-
B(d) of Rep. Act No. 8282 and, therefore, are not entitled to survivors pension under the same
provision by reason of the subject proviso.

Further, the classification of dependent spouses on the basis of whether their respective
marriages to the SSS member were contracted prior to or after the latter’s retirement for the
purpose of entitlement to survivors pension does not rest on real and substantial distinctions. It
is arbitrary and discriminatory. It is too sweeping because the proviso as of the date of his
retirement, which effectively disqualifies the dependent spouses whose respective marriages to
the retired SSS member were contracted after the latter’s retirement as primary beneficiaries,
unfairly lumps all these marriages as sham relationships or were contracted solely for the
purpose of acquiring benefits accruing upon the death of the other spouse.
Petition granted. The proviso "as of the date of his retirement" in Section 12-B(d) of Rep.
Act
No. 8282 is declared VOID for being contrary to the due process and equal protection clauses
of the Constitution.

8. Garcesa v. Laguardia, G.R. No. 161234, April 27, 2007

Facts:
This appeal seeks to reverse and set aside the Court of Appeals Resolution dated July
31, 2002, which dismissed petitioners appeal; and another dated November 5, 2003, which
denied his motion for reconsideration, in CA-G.R. SP No. 71764. The appellate court dismissed
the appeal of the petitioner on the ground of lack of compliance with Section 11, Rule 13, and
Section 2, Rule 42 of the 1997 Revised Rules of Civil Procedure.
The case involves several complaints for violation of Sections 18, 19, and 20 of
Presidential Decree No. 1519,as amended, for the non-deduction and non-remittance of
petitioners contributions to the Social Security System (SSS) covering the period from January
1999 to November 2000. The complaints filed by petitioner on August 13, 2001 were docketed
as Criminal Cases Nos. 7479, 7483 and 7484 in the Municipal Trial Court (MTC) of San Jose,
Antique. Except for the months of July and August of 1999, in which Criminal Cases Nos. 7483
and 7484 were allegedly committed, the three informations filed against Marietta E. Laguardia
and Silverio Eric Lozana, for violations of Sections 18, 19, and 20 of P.D. No. 1519.
The petitioner filed a motion to dismiss alleging that six weeks after the original
complaints were filed in court, the respondents paid all the premiums required by Rep. Act No.
7875. Thereafter, the MTC issued an Orderdismissing the cases on the ground that there was
no showing in the record that the coverage by the National Health Insurance Program had been
made compulsory in the Province of Antique.
Issue and Ruling:

Whether or not in 1999 and 2000 in the Province of Antique nobody could be criminally
prosecuted for non-payment of Medicare contributions

The issues of nonpayment of medicare contributions as a criminal offense and the need for
the conformity of the prosecutor to appeal a case are raised as issues before the Court of
Appeals. The court did not pre-empt on the issue. However, it ruled that dismissal of appeals
purely on technical grounds is frowned upon. In the exercise of its equity jurisdiction, we may
even stay an order of such kind of dismissal, especially in this case where petitioners appeal
appears worthy of the Court of Appeals full consideration prima facie on the merits. Here, the
Court of Appeals could have easily required the parties to submit additional documents as might
have been necessary in the interest of substantial justice, it was wrong for the Court of Appeals
to peremptorily dismiss the petition for failure to explain why registered mail was resorted to,
and for failure of the petitioner to attach to the petition other pleadings and material portions of
the records.

9. Maceda v. Macatangay, G.R. No. 164947, January 31, 2006

Facts:

Spouses Sonia Maceda and Bonifacio Macatangay, executed a Kasunduan whereby they
agreed to live separately. Bonifacio soon lived with his common law wife Carmen Jaraza. When
Bonifacio died, Sonia claimed for his Social Security System (SSS) benefit, which was granted
to her. However, the Social Security Commission (SSC) later ordered. Sonia to refund the
benefits in favor of Encarnacion De Guzman Macatangay, Bonifacio‘s mother, and his
illegitimate children, on the ground that the Kasunduan is a proof that Sonia is not dependent
upon Bonifacio for support.

Sonia filed a petition for review before the Court of Appeals (CA). However, the same was
dismissed due to their failure to explain why they failed to personally serve copies of the petition
to Encarnacion which is required in Section 11, Rule 13 of the 1997 Rules of Civil Procedure. In
her affidavit, Sonia explains that they resorted to service by mail due to the distant addresses of
Encarnacion‘s lawyer in Lopez, Quezon and Sonia‘s counsel in Lucena City, thereby making
personal service impracticable.

Issue and Ruling:

Whether or not the distant addresses made the personal service impracticable making
the service by mail valid?

If only to underscore the mandatory nature of this innovation to our set of adjective rules
requiring personal service whenever practicable, Section 11 of Rule 13 then gives the court the
discretion to consider a pleading or paper as not filed if the other modes of service or filing were
not resorted to and no written explanation was made as to why personal service was not done
in the first place. The exercise of discretion must, necessarily consider the practicability of
personal service, for Section 11 itself begins with the clause “whenever practicable”.

The Court thus take this opportunity to clarify that under Section 11, Rule 13 of the 1997
Rules of Civil Procedure, personal service and filing is the general rule, and resort to other
modes of service and filing, the exception. Henceforth, whenever personal service or filing is
practicable, in the light of the circumstances of time, place and person, personal service or filing
is mandatory. Only when personal service or filing is not practicable may resort to other modes
be had, which must then be accompanied by a written explanation as to why personal service or
filing was not practicable to begin with. In adjudging the plausibility of an explanation, a court
shall likewise consider the importance of the subject matter of the case or the issues involved
therein, and the prima facie merit of the pleading sought to be expunged for violation of Section

In the case at bar, the address of Encarnacion‘s counsel is Lopez, Quezon, while
Sonia‘s counsel‘s is Lucena City. Lopez, Quezon is 83 kilometers away from Lucena City. Such
distance makes personal service impracticable. As in Musa v. Amor, a written explanation why
service was not done personally “might have been superfluous.” Without preempting the
findings of the Court of Appeals on the merits of Sonia‘s petition, if Sonia‘s allegations of fact
and of law therein are true and the outright dismissal of their petition is upheld without giving
them the opportunity to prove their allegations, Sonia would be deprived of her rightful death
benefits just because of the Kasunduan she forged with her husband Bonifacio which contract
is, in the first place, unlawful. The resulting injustice would not be commensurate to Sonia‘
counsel‘s “thoughtlessness” in not explaining why Encarnacion were not personally served
copies of the petition.

10. Panlilio v. RTC, G.R. No. 173846, February 2, 2011

Facts:

The petitioners are corporate officers of Silahis International Hotel,Inc. (SIHI) who have filed a
petition for Suspension of Payments and Rehabilitation before a commercial court. However, at
the time of the filing of the petition for rehabilitation by the Silahis Hotel, there were a number of
criminal charges pending against the corporate officers for violation of the SSS law.
Subsequently, the officers filed with the criminal court a motion to suspend proceedings arguing
that the stay order issued by the commercial court should also apply to the criminal cases then
pending. The criminal court ruled against the petitioners on the ground that the Stay Order
issued by the commercial court does not cover the prosecution of criminal offenses. On appeal,
the Court of Appeals confirmed the criminal court’s ruling. Hence, the petitioners filed a petition
for review on certiorari before the Supreme Court.

Issue and Ruling:

Does the suspension of “all claims” as an incident to a corporate rehabilitation also contemplate
the suspension of criminal charges filed against the corporate officers of the distressed
corporation?

No. Corporate rehabilitation connotes the restoration of the debtor to a position of successful
operation and solvency, if it is shown that its continued operation is economically feasible and
its creditors can recover more, by way of the present value of payments projected in the
rehabilitation plan, if the corporation continues as a going concern than if it is immediately
liquidated. It contemplates a continuance of corporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful operation and solvency, the
purpose being to enable the company to gain a new lease on life and allow its creditors to be
paid their claims out of its earnings

A principal feature of corporate rehabilitation is the suspension of claims against the

distressed corporation.

The rehabilitation of SIHI and the settlement of claims against the corporation is not a
legal ground for the extinction of petitioners’ criminal liabilities. There is no reason why criminal
proceedings should be suspended during corporate rehabilitation, more so, since the prime
purpose of the criminal action is to punish the offender in order to deter him and others from
committing the same or similar offense, to isolate him from society, reform and rehabilitate him
or, in general, to maintain social order. As correctly observed in Rosario, it would be absurd for
one who has engaged in criminal conduct could escape punishment by the mere filing of a
petition for rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are charged in their individual capacities.
Such being the case, the purpose of the law for the issuance of the stay order is not
compromised, since the appointed rehabilitation receiver can still fully discharge his functions as
mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the
officers of the corporation. If there is anything that the rehabilitation receiver might be remotely
interested in is whether the court also rules that petitioners are civilly liable. Such a scenario,
however, is not a reason to suspend the criminal proceedings, because as aptly discussed in
Rosario, should the court prosecuting the officers of the corporation find that an award or
indemnification is warranted, such award would fall under the category of claims, the execution
of which would be subject to the stay order issued by the rehabilitation court. The penal
sanctions as a consequence of violation of the SSS law, in relation to the revised penal code
can therefore be implemented if petitioners are found guilty after trial. However, any civil
indemnity awarded as a result of their conviction would be subject to the stay order issued by
the rehabilitation court. Only to this extent can the order of suspension be considered obligatory
upon any court, tribunal, branch or body where there are pending actions for claims against the
distressed corporation.

Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation
and Insolvency Act of 2010. Section 18 thereof explicitly provides that criminal actions against
the individual officer of a corporation are not subject to the Stay or Suspension Order in
rehabilitation proceedings.

Furthermore, the Court pointed out that Congress has recently enacted Republic Act No.
10142, or the Financial Rehabilitation and Insolvency Act of 2010 where Section 18 thereof
explicitly provides that criminal actions against the individual officer of a corporation are not
subject to the Stay or Suspension Order in rehabilitation proceedings.

11.