IMMACULADA L. GARCIA vs.

SOCIAL SECURITY COMMISSION LEGAL AND COLLECTION, SOCIAL

FACTS:

Garcia, Eduardo de Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo Villanueva were
directors of Impact Corporation. The corporation was engaged in the business of manufacturing
aluminum tube containers and operated two factories. One was a "slug" foundry-factory while the
other was an Extrusion Plant, which processed the "slugs" into aluminum collapsible tubes and
similar containers for toothpaste and other related products.

Around 1978, Impact Corporation started encountering financial problems. In March 1983, Impact
Corporation filed with the SEC a Petition for Suspension of Payments. On 8 May 1985, the union of
Impact Corporation filed a Notice of Strike with the Ministry of Labor which was followed by a
declaration of strike on 28 July 1985. The Ministry of Labor noted the inability of Impact Corporation
to pay wages, 13th month pay, and SSS remittances due to cash liquidity problems. On 3 July 1985,
the 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.

ISSUES:

1. Is Section 28 (f) of the Social Security Law applicable to penalties only?

RULING:

1. No. Garcia mistakenly concluded that Section 28(f) is applicable only to penalties and not to the
liability of the employer for the unremitted premium contributions.

It is a rule in statutory construction that every part of the statute must be interpreted with reference to
the context, i.e., that every part of the statute must be considered together with the other parts, and
kept subservient to the general intent of the whole enactment.

The liability imposed as contemplated under the foregoing Section 28(f) of the Social Security Law
does not preclude the liability for the unremitted amount. Relevant to Section 28(f) is Section 22 of
the same law, which provides that: (a) The contributions imposed in the preceding Section shall be
remitted to the SSS within the first ten (10) days of each calendar month following the month for
which they are applicable or within such time as the Commission may prescribe. Every employer
required to deduct and to remit such contributions shall be liable for their payment and if any
contribution is not paid to the SSS as herein prescribed, he shall pay besides the contribution a
penalty thereon of three percent (3%) per month from the date the contribution falls due until paid. If
deemed expedient and advisable by the Commission, the collection and remittance of contributions
shall be made quarterly or semi-annually in advance, the contributions payable by the employees to
be advanced by their respective employers: Provided, That upon separation of an employee, any
contribution so paid in advance but not due shall be credited or refunded to his employer.
It is a cardinal rule in statutory construction that in interpreting the meaning and scope of a term
used in the law, a careful review of the whole law involved, as well as the intendment of the law,
must be made. Nowhere in the provision or in the Decision can it be inferred that the persons liable
are absolved from paying the unremitted premium contributions.

2. Yes. Section 28(f) of the Social Security Law provides that, “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.”

Garcia invokes the rule in statutory construction called ejusdem generic; that is, where general
words follow an enumeration of persons or things, by words of a particular and specific meaning,
such general words are not to be construed in their widest extent, but are to be held as applying only
to persons or things of the same kind or class as those specifically mentioned. According to her, to
be held liable under the said provision, one must be the "managing head," "managing director," or
"managing partner."

According to the SC, 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.

3. Yes. Garcia raises the defense that under Section 31 of the Corporation Code, only directors,
trustees or officers who participate in unlawful acts or are guilty of gross negligence and bad faith
shall be personally liable, and that being a mere stockholder, she is liable only to the extent of her
subscription.

Section 31 of the Corporation Code, stipulating on the liability of directors, trustees, or officers,
provides that, “Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as
such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.”

Basic is the rule that a corporation is invested by law with a personality separate and distinct from
that of the persons composing it as well as from that of any other legal entity to which it may be
related. A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. Following this, the general
rule applied is that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer, and employee of a corporation are generally not
held personally liable for obligations incurred by the corporation.

Being a mere fiction of law, however, there are peculiar situations or valid grounds that can exist to
warrant the disregard of its independent being and the lifting of the corporate veil. This situation
might arise when a corporation is used to evade a just and due obligation or to justify a wrong, to
shield or perpetrate fraud, to carry out other similar unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law.

Thus, Section 31 of the Corporation Law provides that "Taking a cue from the above provision, a
corporate director, a trustee or an officer, may be held solidarily liable with the corporation in the
following instances:

1. When directors and trustees or, in appropriate cases, the officers of a corporation
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the Corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.

The situation of Garcia, as a director of Impact Corporation when said corporation failed to remit the
SSS premium contributions falls exactly under the fourth situation.