Case Digest: Social Security System (SSS) vs Department of Justice, et.al., G.R. No. 158131

Social Security System (SSS) vs Department of Justice, et.al., G.R. No. 158131, August 8, 2007

Subject: Obligations and Contracts

FACTS

Jose V. Martel and Olga S. Martel are directors of respondent Systems and Encoding Corporation (SENCOR), an information technology firm, with respondent Jose V. Martel serving as Chairman of the Board of Directors. Petitioner is a government-owned and controlled corporation mandated by its charter, RA 1161, to provide financial benefits to private sector employees. SENCOR is covered by RA 1161, as amended by RA 8282, Section 22 of which requires employers like SENCOR to remit monthly contributions to petitioner representing the share of the employer and its employees.

In 1998, petitioner filed with the Pasay City Prosecutor’s Office a complaint against respondent Martels and their five co-accused for SENCOR’s non-payment of contributions amounting to P6,936,435.80 covering the period January 1991 to May 1997. To pay this amount, respondent Martels offered to assign to petitioner a parcel of land in Tagaytay City covered by Transfer Certificate of Title No. 26340 issued under respondent Martels’ name. Petitioner accepted the offer "subject to the condition that [respondent Martels] will settle their obligation either by way of dacion en pago or through cash settlement within a reasonable time Thus, petitioner withdrew its complaint from the Pasay City Prosecutor’s Office but reserved its right to revive the same "in the event that no settlement is arrived at." Accordingly, the Pasay City Prosecutor’s Office dismissed I.S. No. 98-L-1534.

In December 2001, respondent Jose V. Martel wrote petitioner offering, in lieu of the Tagaytay City property, computer-related services. The record does not disclose petitioner’s response to this new offer but on 7 December 2001, petitioner filed with the Pasay City Prosecutor’s Office another complaint against respondent Martels and their five co-accused for SENCOR’s non-remittance of contributions, this time from February 1991 to October 2000 amounting to P21,148,258.30.

In their counter-affidavit, respondent Martels and their co-accused alleged that petitioner is estopped from holding them criminally liable since petitioner had accepted their offer to assign the Tagaytay City property as payment of SENCOR’s liability. Thus, according to the accused, the relationship between SENCOR and petitioner was "converted" into an ordinary debtor-creditor relationship through novation.

DOJ granted respondent Martels’ appeal, set aside Prosecutor Puti’s Resolution. Petitioner sought reconsideration but the DOJ denied its motion in the Resolution of 20 September 2001.

Court of Appeals affirmed the DOJ’s rulings and dismissed petitioner’s petition.

ISSUE

The issue is whether the concept of novation serves to abate the prosecution of respondent Martels for violation of Section 22(a) and (b) in relation to Section 28(e) of RA 1161, as amended.

RULING

No, the concept of novation finds no application in the instant case.

Under the law, novation is a concept relating to the modification of obligations, takes place when the parties to an existing contract execute a new contract which either changes the object or principal condition of the original contract, substitutes the person of the debtor, or subrogates a third person in the rights of the creditor. The effect is either to modify or extinguish the original contract. In its extinctive form, the new obligation replaces the original, extinguishing the obligor’s obligations under the old contract.

In this case, there is, between SENCOR and petitioner, no original contract that can be replaced by a new contract changing the object or principal condition of the original contract, substituting the person of the debtor, or subrogating a third person in the rights of the creditor. The original relationship between SENCOR and petitioner is defined by law – RA 1161, as amended – which requires employers like SENCOR to make periodic contributions to petitioner under pain of criminal prosecution. Unless Congress enacts a law further amending RA 1161 to give employers a chance to settle their overdue contributions to prevent prosecution, no amount of agreements between petitioner and SENCOR can change the nature of their relationship and the consequence of SENCOR’s non-payment of contributions.