Object of a Contract

Bienvenido T. Buada, Isaias B. Quinto, Nemesio Bautista, Orlando R. Bautista,

Freddie R. Bautista, Carlito O. Badua, Gerardo O. Badua, Armando M. Oliva, Rogelio
F. Rapajon, Eugenio F. Flores v. Cement Center, Inc., G.R. No. 180374, 22 January 2010

Facts: Petitioners Bienvenido T. Busada, Isaias B. Quinto, Nemesio Bautista, Orlando T.

Bautista, Freddie R. Bautista, Carlito O. Buada, Gerardo O. Buada, Armando M Oliva,
Rogelio F. Rapajon, and Eugenio F. Flores were tenant-farmers cultivating three parcels
of agricultural land owned by respondent Cement Center Inc.

On March 13, 1998, respondent filed a Complaint for Confirmation of Voluntary

Surrender and Damages against petitioners with the Department of Agrarian Reform
Adjudication Board Region 1 in Urdaneta City, Pangasinan. It claimed on June 28, 1995,
petitioners entered into Compromise Agreement with respondent whereby the former
for and in consideration of the sum of ₱3,000.00 each, voluntarily surrendered their
respective landholdings. However, despite the respondent’s repeated demands,
petitioners refused to vacate subject landholdings.

In their Answer, petitioners alleged that their consent to the Compromise Agreement
was obtained through fraud, deceit, and misrepresentation. They claimed that
sometime in 1995, respondent induced them to sign a Compromise Agreement by
representing that the subject landholdings are no longer viable for agricultural
purposes. Petitioners alleged that respondent assured them that they would only apply
for the conversion of the land and that they would have to surrender the land only
upon the approval of said application and that thereafter, they will be paid a
disturbance compensation of ₱3,000.00 each. Petitioners also claimed that respondent
promised to hire them to work on the project that was planned for the conversion be
denied, petitioners will continue to be tenants and could later become beneficiaries
under the Comprehensive Agrarian Reform Law.

Issue: Whether or not the deficiency of the consideration (which is not in accordance
with Administrative Order No 12) does not nullify the contract.

Held: Despite the above contentions of petitioners, respondent failed to present

evidence to show that the disturbance compensation package corresponds with the
compensation required by the said Administrative Order. Neither was there any
showing that the said disturbance compensation is not less than five times the average
annual gross value of the harvest on petitioners’ actual landholdings during the
preceding five calendar years.
Moreover, it was not shown why petitioners as tenant-farmers would voluntarily give
up their sole source of livelihood. There was likewise no showing that the money was
indeed advantageous to petitioners’ families as to allow them to pursue other sources of
livelihood. To stress, tenancy relations cannot be bargained away except for the strong
reasons provided by evidence in line with the State’s policy of achieving a dignified
existence for the small farmers free from pernicious institutional restraints practices.

In view of the foregoing, we find the evidence on the record and respondent’s
arguments insufficient to overcome the rights of petitioners as provided in the
Constitution and the agrarian statues. The alleged voluntary surrender of petitioners of
their tenancy rights for the sum pf ₱3,000.00 each could not constitute as “voluntary
surrender”.
Anthony Orduña, Dennis Orduña, and Antonita Orduña, v. Eduardo J. Fuentebella,
Marcos S. Cid, Benjamin F. Cid, and Armando Gabriel, Jr., G.R. No. 176841, 29 June
2010

Facts: Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner
Antonita Orduña (Antonita), but no formal deed was executed to document the sale.
The contract price was apparently payable in installments as Antonita remitted from
time to time and Gabriel Sr. accepted partial payments. One of the Orduñas would later
testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the
purchase price.

As early as 1979, however Antonita and her sons, Dennis and Anthony Orduña, were
already occupying the subject lot on the basis of some arrangement undisclosed in the
records and even constructed their house and declared it for tax purposes, as evidenced
by Tax Declaration No. (TD) 96-04012-111087 in which they placed the assessed value of
the structure at ₱20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured
TCT No. T-71499 over the subject lot and continued accepting payments from the
petitioners. On December 12, 1996, Gabriel Jr. acknowledged receipt of ₱40,000 payment
from petitioners. Through a latter dated May 1, 1997, Gabriel Jr. acknowledged that
petitioner had so far made an aggregate payment of ₱60,000. A receipt Gabriel Jr. issued
dated November 24,1997 reflected a ₱10,000 payment.

Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to
Bernard Banta (Bernard) obviously without the knowledge of petitioners, as later
developments would show.

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through
his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all
persons residing on or physical occupying the subject lot vacate the premises or face the
prospect of being ejected.

Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr. at No. 34
Dominican Hill, Baguio City. There, they met Gabriel Jr.’s estranged wife, Teresita, who
informed them about her having filed an affidavit-complaint against her husband and
the Cids for falsification of public documents on March 30, 2000. According to Teresita,
her signature on the June 30, 1999 Gabriel Jr.–Bernard deed of sale was a forgery.
Teresita further informed the petitioners of her intent to honor the aforementioned 1996
verbal agreement between Gabriel Sr. and Antonita and the partial payments they gave
her father-in-law and her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a Complaint20 for Annulment of
Title, Reconveyance with Damages against the respondents before the RTC, docketed as
Civil Case No. 4984-R, specifically praying that TCT No. T-3276 dated May 16, 2000 in
the name of Eduardo be annulled. Corollary to this prayer, petitioners pleaded that
Gabriel Jr.’s title to the lot be reinstated and that petitioners be declared as entitled to
acquire ownership of the same upon payment of the remaining balance of the purchase
price therefor agreed upon by Gabriel Sr. and Antonita. While impleaded and served
with summons, Gabriel Jr. opted not to submit an answer.

Issue: Whether or not such sale has adequate consideration.

Held: The petition is meritorious. Without directly saying so, the trial court held that
the petitioners cannot sue upon the oral sale since in its own words: "x x x for more than
a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that
the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate
consideration."

The trial court’s posture, with which the CA effectively concurred, is patently flawed.
For starters, they equated incomplete payment of the purchase price with inadequacy of
price or what passes as lesion, when both are different civil law concepts with differing
legal consequences, the first being a ground to rescind an otherwise valid and
enforceable contract. Perceived inadequacy of price, on the other hand, is not a
sufficient ground for setting aside a sale freely entered into, save perhaps when the
inadequacy is shocking to the conscience.

The Court to be sure takes stock of the fact that the contracting parties to the 1995 or
1996 sale agreed to a purchase price of ₱125,000 payable on installments. But the
original lot owner, Gabriel Sr., died before full payment can be affected. Nevertheless,
petitioners continued remitting payments to Gabriel, Jr., who sold the subject lot to
Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only
for ₱50,000. On the other hand, Bernard sold it for ₱80,000 to Marcos and Benjamin.
From the foregoing price figures, what is abundantly clear is that what Antonita agreed
to pay Gabriel, Sr., albeit in installment, was very much more than what his son, for the
same lot, received from his buyer and the latter’s buyer later. The Court, therefore,
cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the
transaction between Gabriel Sr. and Antonita being without "adequate consideration."

Spouses May S. Villaluz and Johnny Villaluz, Jr. v. Land Bank of the Philippines and
the Register of Deeds for Davao City, G.R. No. 192602, 18 January 2017
Facts: Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz
(May), requested the latter to provide her with collateral for a loan. At the time, Agbisit
was the chairperson of Milflores Cooperative and she needed ₱600,000 to ₱650,000 for
the expansion of her backyard cut flowers business.4 May convinced her husband,
Johnny Villaluz (collectively, the Spouses Villaluz), to allow Agbisit to use their land,
located in Calinan, Davao City and covered by Transfer Certificate of Title (TCT) No. T-
202276, as collateral. On March 25, 1996, the Spouses Villaluz executed a Special Power
of Attorney in favor of Agbisit authorizing her to, among others, "negotiate for the sale
mortgage, or other forms of disposition a parcel of land covered by Transfer Certificate
of Title No. T-202276" and "sign in our behalf all documents relating to the sale, loan or
mortgage, or other disposition of the aforementioned property. " The one-page power of
attorney neither specified the conditions under which the special powers may be
exercised nor stated the amounts for which the subject land may be sold or mortgaged.

On June 19, 1996, Agbisit executed her own Special Power of Attorney, appointing
Milflores Cooperative as attorney-in-fact in obtaining a loan from and executing a real
mortgage in favor of Land Bank of the Philippines (Land Bank). On June 21, 1996,
Milflores Cooperative, in a representative capacity, executed a Real Estate Mortgage in
favor of Land Bank in consideration of the ₱3,000,000 loan to be extended by the latter.
On June 24, 1996, Milflores Cooperative also executed a Deed of Assignment of the
Produce/Inventory as additional collateral for the loan. Land Bank partially released
one-third of the total loan amount, or ₱995,500, to Milflores Cooperative on June 25,
1996. On the same day, Agbisit borrowed the amount of ₱604,750 from Milflores
Cooperative. Land Bank released the remaining loan amount of ₱2,000,500 to Milflores
Cooperative on October 4, 1996.

Unfortunately, Milflores Cooperative was unable to pay its obligations to Land Bank.
Thus, Land Bank filed a petition for extra-judicial foreclosure sale with the Office of the
Clerk of Court of Davao City. Sometime in August, 2003, the Spouses Villaluz learned
that an auction sale covering their land had been set for October 2, 2003. Land Bank
won the auction sale as the sole bidder.

The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao
City seeking the annulment of the foreclosure sale. The sole question presented before
the RTC was whether Agbisit could have validly delegated her authority as attorney-in-
fact to Milflores Cooperative. Citing Article 1892 of the Civil Code, the RTC held that
the delegation was valid since the Special Power of Attorney executed by the Spouses
Villaluz had no specific prohibition against Agbisit appointing a substitute.
Accordingly, the RTC dismissed the complaint.

On appeal, the CA affirmed the RTC Decision. In its Decision14 dated September 22,
2009, the CA similarly found Article 1892 to be squarely applicable. According to the
CA, the rule is that an agent is allowed to appoint a sub-agent in the absence of an
express agreement to the contrary and that "a scrutiny of the Special Power of Attorney
dated March 25, 1996 executed by appellants in favor of [Agbisit] contained no
prohibition for the latter to appoint a sub-agent." Therefore, Agbisit was allowed to
appoint Milflores Cooperative as her sub-agent.

After the CA denied their motion for reconsideration, the Spouses Villaluz filed this
petition for review. They argue that the Real Estate Mortgage was void because there
was no loan yet when the mortgage contract was executed and that the Special Power of
Attorney was extinguished when Milflores Cooperative assigned its produce and
inventory to Land Bank as additional collateral. In response, Land Bank maintains that
the CA and RTC did not err in applying Article 1892, that the Real Estate Mortgage can
only be extinguished after the amount of the secured loan has been paid, and that the
additional collateral was executed because the deed of assignment was meant to cover
any deficiency in the Real Estate Mortgage.

Perhaps recognizing the correctness of the CA and the RTC's legal position, the Spouses
Villaluz float a new theory in their petition before us. They now seek to invalidate the
Real Estate Mortgage for want of consideration. Citing Article 1409(3), which provides
that obligations "whose cause or object did not exist at the time of the transaction" are
void ab initio, the Spouses Villaluz posit that the mortgage was void because the loan
was not yet existent when the mortgage was executed on June 21, 1996. Since the loan
was released only on June 25, 1996, the mortgage executed four days earlier was
without valuable consideration.

Issue: Was there a valid consideration?

Held: Article 1347 provides that "all things which are not outside the commerce of men,
including future things, may be the object of a contract." Under Articles 1461 and 1462,
things having a potential existence and "future goods," i.e., those that are yet to be
manufactured, raised, or acquired, may be the objects of contracts of sale.1âwphi1 The
narrow interpretation advocated by the Spouses Villaluz would create a dissonance
between Articles 1347, 1461, and 1462, on the one hand, and Article 1409(3), on the
other. A literal interpretation of the phrase "did not exist at the time of the transaction"
in Article 1409(3) would essentially defeat the clear intent and purpose of Articles 1347,
1461, and 1462 to allow future things to be the objects of contracts. To resolve this
apparent conflict, Justice J.B.L. Reyes commented that the phrase "did not exist" should
be interpreted as "could not come into existence" because the object may legally be a
future thing. We adopt this interpretation.

The consideration is certainly not an impossible one because Land Bank was capable of
granting the ₱3,000,000 loan, as it in fact released one-third of the loan a couple of days
later. Although the validity of the Real Estate Mortgage is dependent upon the validity
of the loan, what is essential is that the loan contract intended to be secured is actually
perfected, not at the time of the execution of the mortgage contract vis-a-vis the loan
contract. In loan transactions, it is customary for the lender to require the borrower to
execute the security contracts prior to initial drawdown.

WHEREFORE, the petition is DENIED. The Decision dated September 22, 2009 and
Resolution dated May 26, 2010 of the Court of Appeals in CA-G.R. CV No. 01307 are
AFFIRMED.

Condonation / Remission

Ruben Reyna and Lloyd Soria v. Commission on Audit, G.R. No. 167219, 8 February
2011

Facts: The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing
program wherein loans were granted to various cooperatives. Pursuant thereto, Land
Bank’s Ipil, Zamboanga del Sur Branch (Ipil Branch) went into a massive information
campaign offering the program to cooperatives.
A perusal of the aforementioned Annex "I,"34 the Cattle-Breeding and Buy-Back
Marketing Agreement, would show that stipulation "6.1" which allegedly authorizes
prepayment does not exist. To make matters problematic is that nowhere in the records
of the petition can one find a document which embodies such a stipulation. It bears
stressing that the Auditor noted in his report that, "nowhere in the documents reviewed
disclosed about prepayment scheme with REMAD, the supplier/dealer."

Moreover, it is surprising that one of petitioners’ defense is that they processed the
cooperatives' applications in accordance with their individual job descriptions as
provided in the Bank’s Manual on Field Office Guidelines on Lending Operations
when, on the contrary, petitioners seem to be oblivious of the fact that they clearly
violated the procedure in releasing loans which is embodied in the very same Manual
on Lending Operations, to wit:

Loan Proceeds Released Directly to the Supplier/Dealer – Proceeds of loans granted for
the acquisition of farm machinery equipment; and sub-loan components for the
purchase of construction materials, farm inputs, etc. shall be released directly to the
accredited dealers/suppliers. Payment to the dealer shall be made after presentation of
reimbursement documents (delivery/ official receipts/ purchase orders) acknowledged
by the authorized LBP representative that same has been delivered.

However, this Court is not unmindful of the fact that petitioners contend that the Legal
Department of Land Bank supposedly passed upon the issue of application of Section
88 of PD 1445. Petitioners argue that in an alleged August 22, 1996 Memorandum issued
by the Land Bank, it opined that Section 88 of PD 1445 is not applicable. Be that as it
may, this Court is again constrained by the fact that petitioners did not offer in evidence
the alleged August 22, 1996 Land Bank Memorandum. Therefore, the supposed tenor of
the said document deserves scant consideration. In any case, even assuming arguendo
that petitioners are correct in their claim, they still cannot hide from the fact that they
violated the procedure in releasing loans embodied in the Manual on Lending
Operations as previously discussed.

To emphasize, the Auditor noted that "nowhere in the documents reviewed disclosed
about prepayment scheme with REMAD." It is well settled that findings of fact of quasi-
judicial agencies, such as the COA, are generally accorded respect and even finality by
this Court, if supported by substantial evidence, in recognition of their expertise on the
specific matters under their jurisdiction.38 If the prepayment scheme was in fact
authorized, petitioners should have produced the document to prove such fact as
alleged by them in the present petition. However, as stated before, even this Court is at
a loss as to whether the prepayment scheme was authorized as a review of "Annex I,"
the document to which petitioners base their authority to make advance payments, does
not contain such a stipulation or provision. Highlighted also is the fact that petitioners
clearly violated the procedure in releasing loans found in the Manual on Lending
Operations which provides that payments to the dealer shall only be made after
presentation of reimbursement documents acknowledged by the authorized LBP
representative that the same has been delivered.

In addition, this Court notes that much reliance is made by petitioners on their
allegation that the terms of the CFP allowed for prepayments or advancement of the
payments prior to the delivery of the cattle by the supplier REMAD. It appears,
however, that a CFP, even if admittedly a pro forma contract and emanating from the
Land Bank main office, is merely a facility proposal and not the contract of loan
between Land Bank and the cooperatives. It is in the loan contract that the parties
embody the terms and conditions of a transaction. If there is any agreement to release
the loan in advance to REMAD as a form of prepayment scheme, such a stipulation
should exist in the loan contract. There is, nevertheless, no proof of such stipulation as
petitioners had failed to attach the CFPs or the loan contracts relating to the present
petition.

Based on the foregoing, the COA should, therefore, not be faulted for finding that
petitioners facilitated the commission of the irregular transaction. The evidence they
presented before the COA was insufficient to prove their case. So also, even this Court
is at a loss as to the truthfulness and veracity of petitioners' allegations as they did not
even present before this Court the documents that would serve as the basis for their
claims.

Anent the second ground raised by petitioners, the same is again without merit.
Petitioners impute on the COA grave abuse of discretion when it held petitioners
administratively liable for having processed the loans of the borrowing cooperatives.
This Court stresses, however, that petitioners cannot rely on their supposed observance
of the procedure outlined in the Manual on Lending Operations when clearly the same
provides that "payment to the dealer shall be made after presentation of reimbursement
documents (delivery/official receipts/purchase orders) acknowledged by the
authorized LBP representative that the same has been delivered." Petitioners have not
made a case to dispute the COA's finding that they violated the foregoing provision.
Any presumption, therefore, that public officials are in the regular performance of their
public functions must necessarily fail in the presence of an explicit rule that was
violated.

There is no grave abuse of discretion on the part of the COA as petitioners were given
all the opportunity to argue their case and present any supporting evidence with the
COA Regional Director. Moreover, it bears to point out that even if petitioners' period
to appeal had already lapsed, the COA Commission Proper even resolved their August
10, 1999 letter where they raised in issue the favorable ruling of the Ombudsman.
Anent, the last issue raised by petitioners, the same is without merit. Petitioners
contend that respondent’s Order, requiring them to refund the disallowed transaction,
is functus officio, the amount having been legally written-off.39

A perusal of the records would show that Land Bank Vice-President Conrado B. Roxas
sent a Memorandum40 dated August 5, 1998 to the Head of the Ipil Branch, advising
them that the accounts subject of the present petition have been written-off, to wit:

We are pleased to inform you that Bangko Sentral ng Pilipinas (BSP) in its letter dated
July 20, 1998 has approved the write-off of your recommended Agrarian Reform Loan
Accounts and Commercial Loan Accounts as covered by LBP Board Resolution Nos. 98-
291 and 98-292, respectively, both dated June 18, 1998 x x x.41

The Schedule of Accounts for Write-Off42 attached to the August 5, 1998 Memorandum
shows that the same covered the two loans given to BARBEMCO, the two loans given
to RTLim RMC, and the only loan given to Tungawan PFPMC. The total amount
approved for write-off was ₱2,209,000.00.43 Moreover, petitioners contend that the last
loan given to SIFAMCO was also the subject of a write-off in a similar advice given to
the Buug Branch. The total approved write-off in the second Memorandum44 was for
₱906,000.00.

Issue: Whether or not the write-off equates to condonation of a debt?

Held: In the case at bar, it is thus clear that the writing-off of the loans involved was a
valid act of the Land Bank. In writing-off the loans, the only requirement for the Land
Bank was that the same be in accordance with the applicable Bangko Sentral circulars, it
being under the supervision and regulation thereof. The Land Bank recommended for
write-off all six loans granted to the cooperatives, and it is worthy to note that the
Bangko Sentral granted the same. The write-offs being clearly in accordance with law,
the COA should, therefore, adhere to the same, unless under its general audit
jurisdiction under PD 1445, it finds that under Section 25(1) the fiscal responsibility that
rests directly with the head of the government agency has not been properly and
effectively discharged.

On this note, the reliance of respondent on Section 66 of PD 1445 is baseless as a reading

thereof would show that the same does not pertain to the COA’s power to compromise
claims. Probably, what respondent wanted to refer to was Section 36 which provides:

Section 36. Power to compromise claims. -

 1. When the interest of the government so requires, the Commission may
compromise or release in whole or in part, any claim or settled liability to any
government agency not exceeding ten thousand pesos and with the written
approval of the Prime Minister, it may likewise compromise or release any
similar claim or liability not exceeding one hundred thousand pesos, the
application for relief therefrom shall be submitted, through the Commission and
the Prime Minister, with their recommendations, to the National Assembly.

2. The respective governing bodies of government-owned or controlled

corporations, and self-governing boards, commissions or agencies of the
government shall have the exclusive power to compromise or release any similar
claim or liability when expressly authorized by their charters and if in their
judgment, the interest of their respective corporations or agencies so requires.
When the charters do not so provide, the power to compromise shall be exercised
by the Commission in accordance with the preceding paragraph.

Under Section 36, the use of the word "may" show that the power of the COA to
compromise claims is only permissive, and not mandatory. Further, the second
paragraph of Section 36 clearly states that respective governing bodies of government-
owned or controlled corporations, and self-governing boards, commissions or agencies
of the government shall have the exclusive power to compromise or release any similar
claim or liability when expressly authorized by their charters. Nowhere in Section 36
does it state that the COA must approve a compromise made by a government agency;
the only requirement is that it be authorized by its charter. It, therefore, bears to stress
that the COA does not have the exclusive prerogative to settle and compromise
liabilities to the Government.

The foregoing pronouncements notwithstanding, this Court rules that writing-off a loan
does not equate to a condonation or release of a debt by the creditor.

As an accounting strategy, the use of write-off is a task that can help a company
maintain a more accurate inventory of the worth of its current assets. In general
banking practice, the write-off method is used when an account is determined to be
uncollectible and an uncollectible expense is recorded in the books of account. If in the
future, the debt appears to be collectible, as when the debtor becomes solvent, then the
books will be adjusted to reflect the amount to be collected as an asset. In turn, income
will be credited by the same amount of increase in the accounts receivable.

Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code.53 It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
required.54 In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.

WHEREFORE, premises considered, the petition is DENIED. Decision No. 2003-107

dated July 17, 2003 and Resolution No. 2004-046 dated December 7, 2004, of the
Commission on Audit, are hereby AFFIRMED.

H. Villarica Pawnshop, Inc., HL Villarica Pawnshop, Inc., HRV Villarica Pawnshop,

Inc. and Villarica Pawnshop, Inc., v. Social Security Commission, Social Security
System, Amador M. Monteiro, Santiago Dionisio R. AG DEPP A, Ma. Luz N. Barros-
Magsino, Milagros N. Casuga and Jocelyn Q. Garcia, G.R. No. 228087, 24 January 2018

Facts: Petitioners are private corporations engaged in the pawnshop business and are
compulsorily registered with the Social Security System (SSS). In 2009, petitioners 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, petitioners thru its President and General Manager Atty. Henry P.
Villarica, sent separate Letters,9 all dated July 26, 2010, 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), petitioners 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 dated August 16, 2010, the SSS - San Francisco Del Monte Branch denied
petitioner Villarica Pawnshop, Inc.'s request for refund amounting to ₱3,119,400.15
stating that there was no provision under R.A. No. 9903 allowing reimbursement of
penalties paid before its effectivity. As a result, petitioners filed their respective
Petitions22 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."

The SSC denied all the petitions for lack of merit. It ruled that petitioners 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 petitioners 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. Petitioners filed a
motion for reconsideration but it was denied by the SSC in an Order27 dated January
21, 2015. Undeterred, petitioners appealed before the CA.

In its decision dated February 26, 2016, 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.

Issue: Whether or not petitioner is entitled to reimbursement of penalties paid before

the effectivity of R.A. No. 9903

Ruling: NO. 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.

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. Logically, only existing obligations can be extinguished either by
payment, loss of the thing due, remission or condonation, confusion or merger or rights,
compensation, novation, annulment of contract, rescission, fulfillment of a resolutory
condition, or prescription. Interpreting R.A. No. 9903 in such a way that it extinguishes
an obligation which is already extinguished is simply absurd and unreasonable.
WHEREFORE, the petition is DENIED