G.R. No.

L-21642             July 30, 1966

SOCIAL SECURITY SYSTEM, petitioner-appellee,

vs.
CANDELARIA D. DAVAC, ET AL., respondents;
LOURDES Tuplano, respondent-appellant.

J. Ma. Francisco and N. G. Bravo for respondent-appellant.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Camilo D. Quiason and E. T. Duran for
petitioner-appellee.

BARRERA, J.:

This is an appeal from the resolution of the Social Security Commission declaring respondent
Candelaria Davac as the person entitled to receive the death benefits payable for the death of
Petronilo Davac.

The facts of the case as found by the Social Security Commission, briefly are: The late Petronilo
Davac, a former employee of Lianga Bay Logging Co., Inc. became a member of the Social Security
System (SSS for short) on September 1, 1957. As such member, he was assigned SS I.D. No. 08-
007137. In SSS form E-1 (Member's Record) which he accomplished and filed with the SSS on
November 21, 1957, he designated respondent Candelaria Davac as his beneficiary and indicated
his relationship to her as that of "wife". He died on April 5, 1959 and, thereupon, each of the
respondents (Candelaria Davac and Lourdes Tuplano) filed their claims for death benefit with the
SSS. It appears from their respective claims and the documents submitted in support thereof, that
the deceased contracted two marriages, the first, with claimant Lourdes Tuplano on August 29,
1946, who bore him a child, Romeo Davac, and the second, with Candelaria Davac on January 18,
1949, with whom he had a minor daughter Elizabeth Davac. Due to their conflicting claims, the
processing thereof was held in abeyance, whereupon the SSS filed this petition praying that
respondents be required to interpose and litigate between themselves their conflicting claims over
the death benefits in question.1äwphï1.ñët

On February 25, 1963, the Social Security Commission issued the resolution referred to above, Not
satisfied with the said resolution, respondent Lourdes Tuplano brought to us the present appeal.

The only question to be determined herein is whether or not the Social Security Commission acted
correctly in declaring respondent Candelaria Davac as the person entitled to receive the death
benefits in question.

Section 13, Republic Act No. 1161, as amended by Republic Act No. 1792, in force at the time
Petronilo Davac's death on April 5, 1959, provides:

1. SEC. 13. Upon the covered employee's death or total and permanent disability under such
conditions as the Commission may define, before becoming eligible for retirement and if
either such death or disability is not compensable under the Workmen's Compensation Act,
he or, in case of his death, his beneficiaries, as recorded by his employer shall be entitled to
the following benefit: ... . (emphasis supplied.)

Under this provision, the beneficiary "as recorded" by the employee's employer is the one entitled to
the death benefits. In the case of Tecson vs. Social Security System, (L-15798, December 28,
1961), this Court, construing said Section 13, said:
 It may be true that the purpose of the coverage under the Social Security System is
protection of the employee as well as of his family, but this purpose or intention of the law
cannot be enforced to the extent of contradicting the very provisions of said law as contained
in Section 13, thereof, ... . When the provision of a law are clear and explicit, the courts can
do nothing but apply its clear and explicit provisions (Velasco vs. Lopez, 1 Phil, 270;
Caminetti vs. U.S., 242 U.S. 470, 61 L. ed. 442).

But appellant contends that the designation herein made in the person of the second and, therefore,
bigamous wife is null and void, because (1) it contravenes the provisions of the Civil Code, and (2) it
deprives the lawful wife of her share in the conjugal property as well as of her own and her child's
legitime in the inheritance.

As to the first point, appellant argues that a beneficiary under the Social Security System partakes of
the nature of a beneficiary in life insurance policy and, therefore, the same qualifications and
disqualifications should be applied.

Article 2012 of the New Civil Code provides:

ART. 2012. Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the person who cannot make any
donation to him according to said article.

And Article 739 of the same Code prescribes:

ART. 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of
the donation;

xxx     xxx     xxx

Without deciding whether the naming of a beneficiary of the benefits accruing from membership in
the Social Security System is a donation, or that it creates a situation analogous to the relation of an
insured and the beneficiary under a life insurance policy, it is enough, for the purpose of the instant
case, to state that the disqualification mentioned in Article 739 is not applicable to herein appellee
Candelaria Davac because she was not guilty of concubinage, there being no proof that she had
knowledge of the previous marriage of her husband Petronilo.1

Regarding the second point raised by appellant, the benefits accruing from membership in the Social
Security System do not form part of the properties of the conjugal partnership of the covered
member. They are disbursed from a public special fund created by Congress in pursuance to the
declared policy of the Republic "to develop, establish gradually and perfect a social security system
which ... shall provide protection against the hazards of disability, sickness, old age and death."2

The sources of this special fund are the covered employee's contribution (equal to 2-½ per cent of
the employee's monthly compensation);3 the employer's contribution (equivalent to 3-½ per cent of
the monthly compensation of the covered employee);4 and the Government contribution which
consists in yearly appropriation of public funds to assure the maintenance of an adequate working
balance of the funds of the System.5 Additionally, Section 21 of the Social Security Act, as amended
by Republic Act 1792, provides:
 SEC. 21. Government Guarantee. — The benefits prescribed in this Act shall not be
diminished and to guarantee said benefits the Government of the Republic of the Philippines
accepts general responsibility for the solvency of the System.

From the foregoing provisions, it appears that the benefit receivable under the Act is in the nature of
a special privilege or an arrangement secured by the law, pursuant to the policy of the State to
provide social security to the workingmen. The amounts that may thus be received cannot be
considered as property earned by the member during his lifetime. His contribution to the fund, it may
be noted, constitutes only an insignificant portion thereof. Then, the benefits are specifically declared
not transferable,6 and exempted from tax legal processes, and lien.7 Furthermore, in the settlement
of claims thereunder the procedure to be observed is governed not by the general provisions of law,
but by rules and regulations promulgated by the Commission. Thus, if the money is payable to the
estate of a deceased member, it is the Commission, not the probate or regular court that determines
the person or persons to whom it is payable.8 that the benefits under the Social Security Act are not
intended by the lawmaking body to form part of the estate of the covered members may be gathered
from the subsequent amendment made to Section 15 thereof, as follows:

SEC. 15. Non-transferability of benefit. — The system shall pay the benefits provided for in
this Act to such persons as may be entitled thereto in accordance with the provisions of this
Act. Such benefits are not transferable, and no power of attorney or other document
executed by those entitled thereto in favor of any agent, attorney, or any other individual for
the collection thereof in their behalf shall be recognized except when they are physically and
legally unable to collect personally such benefits: Provided, however, That in the case of
death benefits, if no beneficiary has been designated or the designation there of is void, said
benefits shall be paid to the legal heirs in accordance with the laws of succession. (Rep. Act
2658, amending Rep. Act 1161.)

In short, if there is a named beneficiary and the designation is not invalid (as it is not so in this case),
it is not the heirs of the employee who are entitled to receive the benefits (unless they are the
designated beneficiaries themselves). It is only when there is no designated beneficiaries or when
the designation is void, that the laws of succession are applicable. And we have already held that
the Social Security Act is not a law of succession.9

Wherefore, in view of the foregoing considerations, the resolution of the Social Security Commission
appealed from is hereby affirmed, with costs against the appellant.

So ordered.
G.R. No. L-41299 February 21, 1983

SOCIAL SECURITY SYSTEM, petitioner,

vs.
COURT OF APPEALS, DAVID B. CRUZ, SOCORRO CONCIO CRUZ, and LORNA C.
CRUZ, respondents.

The Solicitor General for petitioner.

Eribert D. Ignacio for respondents David Cruz, Socorro Concio Cruz and Lorna Cruz.

MELENCIO-HERRERA, J.:

This Petition for Review on certiorari of the Decision of the Court of Appeals   stems from the
1

following facts, as narrated by the Trial Court, adopted by the Court of Appeals, and quoted by both
petitioner   and private respondents   :
2 3

Sometime in March, 1963 the spouses David B. Cruz and Socorro Concio Cruz
applied for and were granted a real estate loan by the SSS with their residential lot
located at Lozada Street, Sto. Rosario, Pateros, Rizal covered by Transfer Certificate
of Title No. 2000 of the Register of Deeds of Rizal as collateral. Pursuant to this real
estate ban said spouses executed on March 26, 1963 the corresponding real estate
mortgage originally in the amount of P39,500.00 which was later increased to
P48,000.00 covering the aforementioned property as shown in their mortgage
contract, Exhibit A and 1. From the proceeds of the real estate loan the mortgagors
constructed their residential house on the mortgaged property and were furnished by
the SSS with a passbook to record the monthly payments of their amortizations
(Exhibits B and B-1). The mortgagors, plaintiffs herein, complied with their monthly
payments although there were times when delays were incurred in their monthly
payments which were due every first five (5) days of the month (Exhibits 3-A to 3-N).
On July 9, 1968, defendant SSS filed an application with the Provincial Sheriff of
Rizal for the foreclosure of the real estate mortgage executed by the plaintiffs on the
ground, among others:

That the conditions of the mortgage have been broken since October,
1967 with the default on the part of the mortgagor to pay in full the
installments then due and payable on the principal debt and the
interest thereon, and, all of the monthly installments due and payable
thereafter up to the present date; ...

That by the terms of the contract herein above referred to, the
indebtedness to the mortgagee as of June, 1968 amounts to Ten
Thousand Seven Hundred Two Pesos & 58/100 (P10,702.58),
Philippine Currency, excluding interests thereon, plus 20% of the total
amount of the indebtedness as attorney's fees, also secured by the
said mortgage. (Exhibit "C ")
 Pursuant to this application for foreclosure, the notice of the Sheriff's Sale of the
mortgaged property was initially published in the Sunday Chronicle in its issue of July
14, 1968 announcing the sale at public auction of the said mortgaged property. After
this first publication of the notice, and before the second publication of the notice,
plaintiff herein thru counsel formally wrote defendant SSS, a letter dated July 19,
1968 and received on the same date by said entity demanding, among others, for
said defendant SSS to withdraw the foreclosure and discontinue the publication of
the notice of sale of their property claiming that plaintiffs were up-to-date in the
payment of their monthly amortizations (Exhibits "E" and "E-1"). In answer to this
letter defendant SSS sent a telegram to Atty. Eriberto Ignacio requesting him to
come to their office for a conference. This telegram was received by said counsel on
July 23, 1968 (Exhibit "G " and "G-1 "). To this telegraphic answer, Atty. Ignacio sent
a telegraphic reply suggesting instead that a representative of the SSS be sent to
him because his clients were the aggrieved parties (Exhibit-. "G-2"). Nothing came
out of the telegraphic communications between the parties and the second and third
publications of the notice of foreclosure were published successively in the Sunday
Chronicle in its issues of July 21 and 28, 1968 (Exhibits "N-1 " and "O-1"). 4

On July 24, 1968, the Cruz spouses, together with their daughter Lorna C. Cruz, instituted before the
Court of First Instance of Rizal an action for damages and attorney's fees against the Social Security
System (SSS) and the Provincial Sheriff of Rizal alleging, among other things, that they had fully and
religiously paid their monthly amortizations and had not defaulted in any payment.

In its Answer, with counterclaim, the SSS stressed its right to foreclose the mortgage executed in its
favor by private respondents by virtue of the automatic acceleration clause provided in the mortgage
contract, even after private respondents had paid their amortization installments. In its counterclaim,
the SSS prayed for actual and other damages, as well as attorney's fees, for malicious and baseless
statements made by private respondents and published in the Manila Chronicle.

On September 23, 1968, the Trial Court enjoined the SSS from holding the sale at public auction of
private respondent's property upon their posting of a P2,000.00 bond executed in favor of the SSS.

The Trial Court rendered judgment on March 5, 1971, the dispositive portion of which reads:

WHEREFORE, judgment is rendered against defendant SSS, directing it to pay

plaintiffs the following amounts:

(a) P2,500.00 as actual damage;

(b) P35,000.00 as moral damage;
(c) P10,000.00 as exemplary or corrective damages;
and
(d) P5,000.00 as attorney's fees.

Defendant SSS shall further pay the costs.  5

In respect of the moral and temperate damages awarded, the Trial Court stated:

With respect to moral and temperate damages, the Court holds that the first
publication of the notice was made in good faith but committed by defendant SSS in
gross negligence considering the personnel at its command and the ease with which
verifications of the actual defaulting mortgagors may be made. On this initial
publication of the notice of foreclosure (Exhibits "M" and "M-1"), the Court believes
 plaintiffs are entitled to the amount of P5,000.00. The second publication of the
notice of foreclosure is another matter. There was already notice by plaintiffs to
defendant SSS that there was no reason for the foreclosure of their mortgaged
property as they were never in default. Instead of taking any corrective measure to
rectify its error, defendant SSS adopted a position of righteousness and followed the
same course of action contending that no error has open committed. This act of
defendant indeed was deliberate, calculated to cow plaintiffs into submission, and
made obviously with malice. On this score, the Court believes defendant SSS should
pay and indemnify plaintiffs jointly in the sum of P10,000.00. Lastly, on the third
publication of the notice of foreclosure, the Court finds this continued publication an
outright disregard for the reputation and standing of plaintiffs. The publication having
reached a bigger segment of society and also done with malice and callous disregard
for the rights of its clients, defendant SSS should compensate plaintiffs jointly in the
sum of P20,000.00. All in all, plaintiffs are entitled to P35,000.00 by way of moral
damages.  6

On appeal, the Court of Appeals affirmed the lower Court judgment in a Decision promulgated on
March 14, 1975, but upon SSS's Motion for Reconsideration, modified the judgment by the
elimination of the P5,000.00 moral damages awarded on account of the initial publication of the
foreclosure notice. To quote:

xxx xxx xxx

After a re-examination of the evidence, we find that the negligence of the appellant is
not so gross as to warrant moral and temperate damages. The amount of P5,000.00
should be deducted from the total damages awarded to the plaintiffs.

WHEREFORE, the decision promulgated on March 14, 1975 is hereby maintained

with the sole modification that the amount of P5,000.00 awarded on account of the
initial publication is eliminated so that the said amount should be deducted from the
total damages awarded to the plaintiffs.

SO ORDERED.  7

In so far as exemplary and corrective damages are concerned, the Court of Appeals had this to say.

The Court finds no extenuating circumstances to mitigate the irresponsible action of

defendant SSS and for this reason, said defendant should pay exemplary and
corrective damages in the sum of P10,000.00 ...

Upon denial of its Motion for Reconsideration by respondent Court, the SSS filed this Petition
alleging —.

I. Respondent Court of Appeals erred in not finding that under Condition No. 10 of
the Mortgage contract, which is a self-executing, automatic acceleration clause, all
amortizations and obligations of the mortgagors become ipso jure due and
demandable if they at any time fail to pay any of the amortizations or interest when
due;

II. Respondent Court of Appeals erred in holding that a previous notice to the
mortgagor was necessary before the mortgage could be foreclosed;
 III. Respondent Court of Appeals erred in not holding that, assuming that there was
negligence committed by subordinate employees of the SSS in staking 'Socorro C.
Cruz' for 'Socorro J. Cruz' as the defaulting borrower, the fault cannot be attributed to
the SSS, much less should the SSS be made liable for their acts done without its
knowledge and authority;

IV. Respondent Court of Appeals erred in holding that there is no extenuating

circumstance to mitigate the liability of petitioner;

V. Respondent Court of Appeals erred in not holding that petitioner is not liable for
damages not being a profit-oriented governmental institution but one performing
governmental functions petitions.  8

For failure of the First Division to obtain concurrence of the five remaining members (Justices Plana
and Gutierrez, Jr. could take no part), the case was referred to the Court en banc.

The pivotal issues raised are: (1) whether the Cruz spouses had, in fact, violated their real estate
mortgage contract with the SSS as would have warranted the publications of the notices of
foreclosure; and (2) whether or not the SSS can be held liable for damages.

The first issue revolves around the question of appreciation of the evidence by the lower Court as
concurred in by the Court of Appeals. The appraisal should be left undisturbed following the general
rule that factual findings of the Court of Appeals are not subject to review by this Court, the present
case not being one of the recognized exceptions to that rule.   Accordingly, we are upholding the
9

finding of the Court of Appeals that the SSS application for foreclosure was not justified, particularly
considering that the real estate loan of P48,000.00 obtained by the Cruzes in March, 1963, was
payable in 15 years with a monthly amortization of P425.18, and that as of July 14, 1968, the date of
the first notice of foreclosure and sale, the outstanding obligation was still P38,875.06 and not
P10,701.58, as published.

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses, David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellee, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July 1968.  10

A similar conclusion was reached by the trial Court.

Defendant's contention that there was clerical error in the amount of the mortgage
loan due as of June, 1968 as per their application for foreclosure of real estate
mortgage is a naive attempt to justify an untenable position. As a matter of fact
plaintiffs were able to establish that the mortgagor who actually committed the
violation of her mortgage loan was a certain 'Socorro J. Cruz' who was in arrears in
the amount of P10,702.58 at the time the application for foreclosure of real estate
mortgage was filed Exhibits "BB" and "EE"). Defendant mortgagee must have
committed an error in picking the record of plaintiff 'Socorro C. Cruz' instead of the
record of 'Socorro J. Cruz'. Defendant SSS, however, denied having committed any
error and insists that their motion for foreclosure covers the real estate mortgage of
spouses David E. Cruz and Socorro C. Cruz. This Court is nonetheless convinced
 that the foreclosure proceedings should have been on the real estate mortgage of
'Socorro J. Cruz' who was in arrears as of June, 1968 in the amount of P10,701.58,
the exact amount mentioned in the application for foreclosure of real estate mortgage
by defendant SSS.  11

We come now to the amendability of the SSS to judicial action and legal responsibility for its acts. To
our minds, there should be no question on this score considering that the SSS is a juridical entity
with a personality of its own.   It has corporate powers separate and distinct from the
12

Government.   SSS' own organic act specifically provides that it can sue and be sued in
13

Court.   These words "sue and be sued" embrace all civil process incident to a legal action.   So
14 15

that, even assuming that the SSS, as it claims, enjoys immunity from suit as an entity performing
governmental functions, by virtue of the explicit provision of the aforecited enabling law, the
Government must be deemed to have waived immunity in respect of the SSS, although it does not
thereby concede its liability. That statutoy law has given to the private-citizen a remedy for the
enforcement and protection of his rights. The SSS thereby has been required to submit to the
jurisdiction of the Courts, subject to its right to interpose any lawful defense. Whether the SSS
performs governmental or proprietary functions thus becomes unnecessary to belabor. For by that
waiver, a private citizen may bring a suit against it for varied objectives, such as, in this case, to
obtain compensation in damages arising from contract   and even for tort.
16

A recent case squarely in point anent the principle, involving the National Power Corporation, is that
of Rayo vs. Court of First Instance of Bulacan, 110 SCRA 457 (1981), wherein this Court, speaking
through Mr. Justice Vicente Abad Santos, ruled:

It is not necessary to write an extended dissertation on whether or not the NPC

performs a governmental function with respect to the management and operation of
the Angat Dam. It is sufficient to say that the government has organized a private
corporation, put money in it and has snowed it to sue and be sued in any court under
its charter. (R.A. No. 6395, Sec. 3[d]). As a government owned and controlled
corporation, it has a personality of its own, distinct and separate from that of the
Government. (See National Shipyards and Steel Corp. vs. CIR, et al., L-17874,
August 31, 1963, 8 SCRA 78 1). Moreover, the charter provision that the NPC can
'sue and be sued in any court' is without qualification on the cause of action and
accordingly it can include a tort claim such as the one instituted by the petitioners.

The proposition that the SSS is not profit-oriented was rejected in the case of SSS Employees'
Association vs. Hon. Soriano.   But even conceding that the SSS is not, in the main, operated for
17

profit, it cannot be denied that, in so far as contractual loan agreements with private parties are
concerned, the SSS enters into them for profit considering that the borrowers pay interest, which is
money paid for the use of money, plus other charges.

In so far as it is argued that to hold the SSS liable for damages would be to deplete the benefit funds
available for its covered members, suffice it to say, that expenditures of the System are not confined
to the payment of social security benefits. For example, the System also has to pay the salaries of its
personnel. Moreover, drawing a parallel with the NASSCO and the Virginia Tobacco Administration,
whose funds are in the nature of public funds, it has been held that those funds may even be made
the object of a notice of garnishment.  18

What is of paramount importance in this controversy is that an injustice is not perpetrated and that
when damage is caused a citizen, the latter should have a right of redress particularly when it arises
from a purely private and contractual relationship between said individual and the System.
We find, however, that under the circumstances of the case, the SSS cannot be held liable for the
damages as awarded by the Trial Court and the Appellate Tribunal.

As basis for the award of actual damages, the Trial Court relied on the alleged expenses incurred by
private respondents for the wardrobe they were supposed to use during their trip abroad, which was
allegedly aborted because of the filing of the foreclosure application by the SSS. We find the
foregoing too speculative. There could have been other reasons why the trip did not materialize.
Moreover, it appears that private respondents' passports had already expired but that they made no
effort to secure new passports.   Nor did they secure the necessary visas from the local consulates
19

of foreign countries they intended to visit for their trip abroad.  20

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of
Appeals "the negligence of the appellant is not so gross as to warrant moral and temperate
damages",   except that, said Court reduced those damages by only P5,000.00 instead of
21

eliminating them. Neither can we agree with the findings of both the Trial Court and respondent
Court that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting
in the legitimate exercise of its right under the mortgage contract in the face of irregular payments
made by private respondents, and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for an award of moral
damages in the same way that a clearly unfounded civil action is not among the grounds for moral
damages.  22

With the ruling out of compensatory, moral and temperate damages, the grant of exemplary or
corrective damages should also be set aside.   Moreover, no proof has been submitted that the SSS
23

had acted in a wanton, reckless and oppressive manner.  24

However, as found by both the Trial and Appellate Courts, there was clear negligence on the part of
SSS when they mistook the loan account of Socorro J. Cruz for that of private respondent Socorro
C. Cruz. Its attention was called to the error, but it adamantly refused to acknowledge its mistake.
The SSS can be held liable for nominal damages. This type of damages is not for the purpose of
indemnifying private respondents for any loss suffered by them but to vindicate or recognize their
rights which have been violated or invaded by petitioner SSS.  25

The circumstances of the case also justify the award of attorney's fees, as granted by the Trial and
Appellate Courts, particularly considering that private respondents were compelled to litigate for the
prosecution of their interests. 
26

WHEREFORE, the judgment sought to be reviewed is hereby modified in that petitioner SSS shall
pay private respondents: P3,000.00 as nominal damages; and P5,000.00 as attorney's fees.

Costs against petitioner Social Security System.

SO ORDERED.

Teehankee, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Vasquez and Relova, JJ., concur.

Fernando, C.J., concurs in the result.

Plana, Escolin ** and Gutierrez, Jr., *** JJ., took no part.

 
 

Separate Opinions

AQUINO, J., concurring:

I concur. The award of moral damages is not justified under arts. 2219 and 2220 of the Civil Code. I
vote to award the private respondents the additional sum of P2,000 as litigation expenses.

MAKASIAR, J., dissenting:

I dissent.

To begin with, the negligent acts committed by the officers and employees of the petitioner, Social
Security System, amounted to not simply a contractual breach but tort. For the record is clear that
petitioner's officers and employees were grossly negligent bordering on malice or bad faith in
applying for the extrajudicial foreclosure of the mortgage contract executed in its favor by the
spouses David B. Cruz and Socorro Concio-Cruz, and that even after private respondents had
brought to the attention of the petitioner's officers and employees their mistake, they insisted on their
course of action, instead of making the necessary rectifications, which grossly negligent and
oppressive acts caused damage to private respondents. As found by the Court of Appeals:

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellees, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July, 1968.

It is obvious that the appellant applied for the extra-judicial foreclosure of the
mortgage in question because of the gross negligence of its employees. This
negligence was aggravated when the appellant, after being informed of the error,
insisted on proceeding with the extra-judicial foreclosure by invoking alleged
violations of the mortgage contract. But these violations are either too minor to
warrant the drastic step of foreclosure or were deemed condoned when the appellant
accepted late payments prior to June 30, 1968. Hence the trial court did not err in
concluding that 'the act of defendant indeed was deliberate, calculated to cow
plaintiffs into submission and made obviously with malice (p. 54, rec.; emphasis
supplied).

The circumstance that there was a pre-existing contractual relationship between the herein
contending parties, does not bar the tort liability of the officers and employees of petitioner; because
tort liability may still exist despite presence of contractual relations as the act that breaks the contract
may also be a tort, as in this case (Air France vs. Carrascoso, L-21438, Sept. 28, 1966, 18 SCRA
155, 168-169; Singson & Castillo vs. Bank of the Philippine Islands, L-24837, June 27, 1968, 23
SCRA 1117, 1119-20).

Consequently, a tortious act being involved, the applicable provision of law is Article 2180 in relation
to Article 2176 of the New Civil Code. Under Article 2180, ... The State is responsible in like manner
when it acts through a special agent; but not when the damage has been caused by the official to
whom the task done properly pertains, in which case what is provided in Article 2176 shall be
applicable.

In the case at bar, the petitioner Social Security System as the instrumentality of the State to
implement the social justice guarantee enunciated in the Constitution, did not act through a special
agent. Hence, the Social Security System cannot be liable for the damages caused by the tortious
acts of its officers and employees while in the performance of their regular functions. The remedy
therefore of private respondents is to proceed against the guilty officers and employees of petitioner
Social Security System as mandated by Article 2176 of the New Civil Code.

For as held in the leading case of Merritt vs. Government of the Philippine Islands (34 Phil. 311).

The responsibility of the State is limited by Article 1903 to the case wherein it acts
through a special agent, ... so that in representation of the state and being bound to
act as an agent thereof, he executes the trust confided to him. This concept does not
apply to any executive agent who is an employee of the active administration and
who on his own responsibility performs the functions which are inherent in and
naturally pertain to his office and which are regulated by law and the regulations.

While Article 2180 of the New Civil Code was not invoked by the petitioner as a defense, this does
not prevent this Tribunal from taking cognizance of the same. For as stressed in Ortigas, Jr. vs.
Lufthansa German Airlines (June 30, 1975, 64 SCRA 610, 633), failure to assign a defense as an
error on appeal is a pure technicality that should not prevail over the substantial issues in a
controversy as the same would not serve the interest of justice, and "this Court is clothed with ample
authority to review matters even if they are not assigned as errors in the appeal, if it finds that our
consideration is necessary in arriving at a just decision of the case" (citing Saura & Export Co., Inc.,
May 31, 1963, 8 SCRA 143). Further, We have, time and again, re-stated the rule that the Supreme
Court can suspend its own rules to serve the ends of justice (Jose vs. C.A., et al., L-38581, March
31, 1976; Phil. Blooming Mills Employees Organization, et al. vs. PBM Co., et al., L-31195, 51 SCRA
189, 215; Ronquillo vs. Marasigan, May 31, 1962, 5 SCRA 304, 312-313; Ordoveza vs. Raymundo,
63 Phil. 275).

The principle that a defense not expressly pleaded is deemed waived unless such failure is
satisfactorily explained, is merely a general rule which is subject to exceptions, among which is
when the Court can take judicial notice of such defense. In this case, We can take judicial notice of
the law, like Article 2180 of the New Civil Code. It must be emphasized that the courts have as much
duty as the Commission on August to protect the public treasury from being mulcted or raided
illegally. And this becomes more imperative considering that a substantial portion of the funds of the
petitioner comes from the contributions of- employees and workers in private firms and is therefore
in the nature of a trust fund to be expended only for their welfare and benefit, with the government
merely giving some subsidy. Any amount of damages illegally assessed against the Social Security
System will deplete the benefit funds available to its covered members for the contingencies of
sickness, disability, retirement or death.
It cannot likewise be seriously questioned that the Social Security System is comprehended in the
definition in Section 2 of the Revised Administrative Code of the term "Government of the Republic
of the Philippines ... which refers to the corporate governmental entity through which the functions of
government are exercised throughout the Philippine Islands, including, save as the contrary appears
from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the central Government or to the provincial or municipal branches
or other forms of local government." And the second paragraph of said Section 2 provides that the
term "national government" refers to the central government as distinguished from the different
forms of local government. There is nothing therein nor in the Social Security Act, as amended,
intimating that the national government does not include the Social Security System.

It is true that the Social Security System has a corporate or juridical personality of its own. But this
does not remove it as an integral part of the national or central government. For such corporate or
juridical personality invested in it is more for facility and convenience in the attainment of the
objectives for which it was created by the legislative. Such vesting of corporate or juridical
personality in the Social Security System was never intended to destroy the shield from liability
afforded it as an integral part of the State or Government by Article 2180 of the New Civil Code.
Relatedly, such corporate or juridical personality of the Social Security System and the express
provision of the law creating the same that it can sue and be sued, have the effect of merely waiving
its immunity from suit as an entity performing governmental functions. Such waiver of its immunity
from suit is not an admission of its liability. Such waiver merely allows a private citizen a remedy for
the enforcement and protection of his rights, but always subject to the lawful defenses of the Social
Security System one of which is Article 2180 of the New Civil Code as aforestated. In other words,
such waiver of immunity from suit is not equivalent to instant liability. The Social Security System
can only be held liable for damages arising from the tortious acts of its officers and employees only if
it acts through a special agent, which is not true in the case at bar.

II

It must be finally stressed that the Social Security System cannot be liable for damages because it is
an entity of government performing governmental functions; hence, not profit-oriented. The 1963
doctrine in SSSEA vs. Soriano (7 SCRA 1016 [1963]) that the system is exercising proprietary
functions, is no longer controlling.

For in 1969, the distinction between constituent and ministrant functions of the Government as laid
down in the case of Bacani vs. Nacoco (100 Phil. 468 [1956]) has been obliterated. In the case of
Agricultural Credit and Cooperative Financing Administration (ACCFA) vs. Confederation of Unions
in Government Corporations and Offices (CUGCO) [30 SCRA 649 (1969)], this Court in re-
examining the aforesaid Bacani ruling observed that the trend has been to abandon and reject the
traditional "Constituent- Ministrant" criterion in governmental functions in favor of the more
responsive postulate that the growing complexities of modern society have rendered the traditional
classification of government functions unrealistic and obsolete.

WE held in the ACCFA case, thus:

The growing complexities of modern society, however, have rendered this traditional
classification of the functions of government quite unrealistic, not to say obsolete.
The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or groups
of individuals,' continue to lose their well-defined boundaries and to be absorbed
within activities that the government must have undertaken in its sovereign capacity if
 it is to meet the increasing social challenges of the times. Here as almost
everywhere, else, the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course, this development was envisioned indeed adopted
as a national policy, by the Constitution itself in its declaration of principle concerning
the promotion of social justice.

Chief Justice Fernando, then Associate Justice, in his concurring opinion stressed that:

The decision reached by this Court so ably given expression in the opinion of Justice
Makalintal, characterized with vigor, clarity and precision, represents what for me is
a clear tendency not to be necessarily bound by our previous pronouncements on
what activities partake of a nature that is governmental. Of even greater significance,
there is a definite rejection of the 'constituent-ministrant' criterion of governmental
functions, followed in Bacani vs. National Coconut Corporation. That indeed is cause
for gratification. For me at least, there is again full adherence to the basic philosophy
of the Constitution as to the extensive and vast power lodged in our government to
cope with the social and economic problems that even now sorely beset us. There is
therefore full concurrence on my part to the opinion of the court, distinguished by its
high quality of juristic craftsmanship (pp. 666-667).

xxx xxx xxx

4. With the decision reached by us today, the government is freed from the
compulsion exerted by the Bacani doctrine of the 'constituent-ministrant' test as a
criterion for the type of activity in which it may engage. It constricting effect is
consigned to oblivion. No doubts or misgivings need assail us that government
efforts to promote the public wealth whether through regulatory legislation of vast
scope and emplitude or through the undertaking of business activities, would have to
face a searching and rigorous scrutiny. It is clear that their legitimacy cannot be
challenged on the ground alone of their being offensive to the implications of the
laissez- faire concept. Unless there be a repugnancy then to the limitations expressly
set forth in the Constitution to protect individual rights, the government enjoys a
much wider latitude of action as to the means it chooses to cope with grave social
and economic problems that urgently press for solution. For me, at least, that is to
manifest deference to the philosophy of our fundamental law. Hence my full
concurrence, as announced at the outset. (pp- 682-683, emphasis supplied).

The 1935 Constitution declared:

Sec. 5. The promotion of social justice to insure the well being and economic security
of all the people should be the concern of the State. (Art. II, Declaration of
Principles).

The present 1973 Constitution provides under its Declaration of Principles and State Policies (Article
11), that

The State shall promote social justice to ensure the dignity, welfare, and security of
all the people. Towards this end, the State shall regulate the acquisition, ownership,
use, enjoyment, and disposition of private property, and equitably diffuse property
ownership and profits. (Section 6);

and
 The State shall establish, maintain, and ensure adequate social services in the field
of education, health, housing, employment, welfare, and social security to guarantee
the enjoyment by the people of a decent standard of living. (Section 7).

The strictly governmental function of the SSS is spelled out unmistakably in Section 2 of R.A. No.
1161 entitled "The Social Security Act of 1954," thus:

It is hereby declared to be the policy of the Republic of the Philippines to develop,

establish gradually and perfect a social security system which shall be suitable to the
needs of the people throughout the Philippines, and shall provide protection against
the hazards of disability, sickness, old age and death.

As stated in the Explanatory Note to the Bill that became R. A. No. 1161, the Social Security Act of
1954:

It is a recognized principle in free societies that the State must help its citizens to
make provision for emergencies beyond their control, such as unemployment,
sickness requiring expensive medical treatment, and similar emergencies to a
greater or lesser degree by means of social security legislation in a variety of forms.

And this Court, in Roman Catholic Archbishop of Manila vs. SSS (L-15045, 1 SCRA 10 [1961]),
declared that "the Social Security Law was enacted pursuant to the 'policy of the Republic to
develop, establish gradually and perfect a social security system which shall be suitable to the needs
of the people throughout the Philippines and provide protection to employees against the hazards of
disability, sickness, old age and death' (Sec. 2, Republic Act No. 1161, as amended). Such
enactment is a legitimate exercise of the police power. It affords protection to labor, especially to
working women and minors, and is in full accord with the constitutional provisions on the 'promotion
of social justice to insure the well being and economic security of all the people.

It is interesting to note that aforesaid pronouncement of this Court was incorporated in the Social
Security Act (R.A. 1161) by Presidential Decree No. 24 issued on October 19, 1972. Thus, as
amended by said Decree, its section 2 now reads: "It is the policy of the Republic of the Philippines
to establish, develop, promote and perfect a sound viable 'tax exempt social security service suitable
to the needs of the people throughout the Philippines, which shall provide to covered employees and
their families protection against the hazards of disability, sickness, old age, and death, with a view to
promoting their well-being in the spirit of social justice" (emphasis supplied). And one of its
whereases expressly states that "the measure is necessary to effect reforms in SSS operations
and to revitalize its structure as an important agency in the promotion of the social and economic
development programs of the Government; ... (emphasis supplied).

Considering therefore that the establishment and maintenance of an adequate social security and
social services, which the Social Security System seeks to perform and achieve are functions
pursuant to the basic constitutional mandate directing the State to promote "social justice to insure
the well-being and economic security of all the people" (1935 Constitution) or "to insure the dignity,
welfare and security of all the people" as well as the police power of the State, the inescapable
conclusion is that the function of the SSS is and has always been governmental.

It thus becomes clear that petitioner Social Security System, under the obtaining facts and
applicable laws in the case, is not liable for the damages caused to private respondents by the
tortious acts of its officers and employees to whom the task done properly pertained.
A contrary rule as that enunciated in the majority opinion invites conspiracy between officials and
employees of the Social Security System and private parties to create financial liabilities against the
System. Its funds are public funds and more importantly trust funds, which must be protected.

Separate Opinions

AQUINO, J., concurring:

I concur. The award of moral damages is not justified under arts. 2219 and 2220 of the Civil Code. I
vote to award the private respondents the additional sum of P2,000 as litigation expenses.

MAKASIAR, J., dissenting:

I dissent.

To begin with, the negligent acts committed by the officers and employees of the petitioner, Social
Security System, amounted to not simply a contractual breach but tort. For the record is clear that
petitioner's officers and employees were grossly negligent bordering on malice or bad faith in
applying for the extrajudicial foreclosure of the mortgage contract executed in its favor by the
spouses David B. Cruz and Socorro Concio-Cruz, and that even after private respondents had
brought to the attention of the petitioner's officers and employees their mistake, they insisted on their
course of action, instead of making the necessary rectifications, which grossly negligent and
oppressive acts caused damage to private respondents. As found by the Court of Appeals:

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellees, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July, 1968.

It is obvious that the appellant applied for the extra-judicial foreclosure of the
mortgage in question because of the gross negligence of its employees. This
negligence was aggravated when the appellant, after being informed of the error,
insisted on proceeding with the extra-judicial foreclosure by invoking alleged
violations of the mortgage contract. But these violations are either too minor to
warrant the drastic step of foreclosure or were deemed condoned when the appellant
accepted late payments prior to June 30, 1968. Hence the trial court did not err in
concluding that 'the act of defendant indeed was deliberate, calculated to cow
 plaintiffs into submission and made obviously with malice (p. 54, rec.; emphasis
supplied).

The circumstance that there was a pre-existing contractual relationship between the herein
contending parties, does not bar the tort liability of the officers and employees of petitioner; because
tort liability may still exist despite presence of contractual relations as the act that breaks the contract
may also be a tort, as in this case (Air France vs. Carrascoso, L-21438, Sept. 28, 1966, 18 SCRA
155, 168-169; Singson & Castillo vs. Bank of the Philippine Islands, L-24837, June 27, 1968, 23
SCRA 1117, 1119-20).

Consequently, a tortious act being involved, the applicable provision of law is Article 2180 in relation
to Article 2176 of the New Civil Code. Under Article 2180, ... The State is responsible in like manner
when it acts through a special agent; but not when the damage has been caused by the official to
whom the task done properly pertains, in which case what is provided in Article 2176 shall be
applicable.

In the case at bar, the petitioner Social Security System as the instrumentality of the State to
implement the social justice guarantee enunciated in the Constitution, did not act through a special
agent. Hence, the Social Security System cannot be liable for the damages caused by the tortious
acts of its officers and employees while in the performance of their regular functions. The remedy
therefore of private respondents is to proceed against the guilty officers and employees of petitioner
Social Security System as mandated by Article 2176 of the New Civil Code.

For as held in the leading case of Merritt vs. Government of the Philippine Islands (34 Phil. 311).

The responsibility of the State is limited by Article 1903 to the case wherein it acts
through a special agent, ... so that in representation of the state and being bound to
act as an agent thereof, he executes the trust confided to him. This concept does not
apply to any executive agent who is an employee of the active administration and
who on his own responsibility performs the functions which are inherent in and
naturally pertain to his office and which are regulated by law and the regulations.

While Article 2180 of the New Civil Code was not invoked by the petitioner as a defense, this does
not prevent this Tribunal from taking cognizance of the same. For as stressed in Ortigas, Jr. vs.
Lufthansa German Airlines (June 30, 1975, 64 SCRA 610, 633), failure to assign a defense as an
error on appeal is a pure technicality that should not prevail over the substantial issues in a
controversy as the same would not serve the interest of justice, and "this Court is clothed with ample
authority to review matters even if they are not assigned as errors in the appeal, if it finds that our
consideration is necessary in arriving at a just decision of the case" (citing Saura & Export Co., Inc.,
May 31, 1963, 8 SCRA 143). Further, We have, time and again, re-stated the rule that the Supreme
Court can suspend its own rules to serve the ends of justice (Jose vs. C.A., et al., L-38581, March
31, 1976; Phil. Blooming Mills Employees Organization, et al. vs. PBM Co., et al., L-31195, 51 SCRA
189, 215; Ronquillo vs. Marasigan, May 31, 1962, 5 SCRA 304, 312-313; Ordoveza vs. Raymundo,
63 Phil. 275).

The principle that a defense not expressly pleaded is deemed waived unless such failure is
satisfactorily explained, is merely a general rule which is subject to exceptions, among which is
when the Court can take judicial notice of such defense. In this case, We can take judicial notice of
the law, like Article 2180 of the New Civil Code. It must be emphasized that the courts have as much
duty as the Commission on August to protect the public treasury from being mulcted or raided
illegally. And this becomes more imperative considering that a substantial portion of the funds of the
petitioner comes from the contributions of- employees and workers in private firms and is therefore
in the nature of a trust fund to be expended only for their welfare and benefit, with the government
merely giving some subsidy. Any amount of damages illegally assessed against the Social Security
System will deplete the benefit funds available to its covered members for the contingencies of
sickness, disability, retirement or death.

It cannot likewise be seriously questioned that the Social Security System is comprehended in the
definition in Section 2 of the Revised Administrative Code of the term "Government of the Republic
of the Philippines ... which refers to the corporate governmental entity through which the functions of
government are exercised throughout the Philippine Islands, including, save as the contrary appears
from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the central Government or to the provincial or municipal branches
or other forms of local government." And the second paragraph of said Section 2 provides that the
term "national government" refers to the central government as distinguished from the different
forms of local government. There is nothing therein nor in the Social Security Act, as amended,
intimating that the national government does not include the Social Security System.

It is true that the Social Security System has a corporate or juridical personality of its own. But this
does not remove it as an integral part of the national or central government. For such corporate or
juridical personality invested in it is more for facility and convenience in the attainment of the
objectives for which it was created by the legislative. Such vesting of corporate or juridical
personality in the Social Security System was never intended to destroy the shield from liability
afforded it as an integral part of the State or Government by Article 2180 of the New Civil Code.
Relatedly, such corporate or juridical personality of the Social Security System and the express
provision of the law creating the same that it can sue and be sued, have the effect of merely waiving
its immunity from suit as an entity performing governmental functions. Such waiver of its immunity
from suit is not an admission of its liability. Such waiver merely allows a private citizen a remedy for
the enforcement and protection of his rights, but always subject to the lawful defenses of the Social
Security System one of which is Article 2180 of the New Civil Code as aforestated. In other words,
such waiver of immunity from suit is not equivalent to instant liability. The Social Security System
can only be held liable for damages arising from the tortious acts of its officers and employees only if
it acts through a special agent, which is not true in the case at bar.

II

It must be finally stressed that the Social Security System cannot be liable for damages because it is
an entity of government performing governmental functions; hence, not profit-oriented. The 1963
doctrine in SSSEA vs. Soriano (7 SCRA 1016 [1963]) that the system is exercising proprietary
functions, is no longer controlling.

For in 1969, the distinction between constituent and ministrant functions of the Government as laid
down in the case of Bacani vs. Nacoco (100 Phil. 468 [1956]) has been obliterated. In the case of
Agricultural Credit and Cooperative Financing Administration (ACCFA) vs. Confederation of Unions
in Government Corporations and Offices (CUGCO) [30 SCRA 649 (1969)], this Court in re-
examining the aforesaid Bacani ruling observed that the trend has been to abandon and reject the
traditional "Constituent- Ministrant" criterion in governmental functions in favor of the more
responsive postulate that the growing complexities of modern society have rendered the traditional
classification of government functions unrealistic and obsolete.

WE held in the ACCFA case, thus:

The growing complexities of modern society, however, have rendered this traditional
classification of the functions of government quite unrealistic, not to say obsolete.
 The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or groups
of individuals,' continue to lose their well-defined boundaries and to be absorbed
within activities that the government must have undertaken in its sovereign capacity if
it is to meet the increasing social challenges of the times. Here as almost
everywhere, else, the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course, this development was envisioned indeed adopted
as a national policy, by the Constitution itself in its declaration of principle concerning
the promotion of social justice.

Chief Justice Fernando, then Associate Justice, in his concurring opinion stressed that:

The decision reached by this Court so ably given expression in the opinion of Justice
Makalintal, characterized with vigor, clarity and precision, represents what for me is
a clear tendency not to be necessarily bound by our previous pronouncements on
what activities partake of a nature that is governmental. Of even greater significance,
there is a definite rejection of the 'constituent-ministrant' criterion of governmental
functions, followed in Bacani vs. National Coconut Corporation. That indeed is cause
for gratification. For me at least, there is again full adherence to the basic philosophy
of the Constitution as to the extensive and vast power lodged in our government to
cope with the social and economic problems that even now sorely beset us. There is
therefore full concurrence on my part to the opinion of the court, distinguished by its
high quality of juristic craftsmanship (pp. 666-667).

xxx xxx xxx

4. With the decision reached by us today, the government is freed from the
compulsion exerted by the Bacani doctrine of the 'constituent-ministrant' test as a
criterion for the type of activity in which it may engage. It constricting effect is
consigned to oblivion. No doubts or misgivings need assail us that government
efforts to promote the public wealth whether through regulatory legislation of vast
scope and emplitude or through the undertaking of business activities, would have to
face a searching and rigorous scrutiny. It is clear that their legitimacy cannot be
challenged on the ground alone of their being offensive to the implications of the
laissez- faire concept. Unless there be a repugnancy then to the limitations expressly
set forth in the Constitution to protect individual rights, the government enjoys a
much wider latitude of action as to the means it chooses to cope with grave social
and economic problems that urgently press for solution. For me, at least, that is to
manifest deference to the philosophy of our fundamental law. Hence my full
concurrence, as announced at the outset. (pp- 682-683, emphasis supplied).

The 1935 Constitution declared:

Sec. 5. The promotion of social justice to insure the well being and economic security
of all the people should be the concern of the State. (Art. II, Declaration of
Principles).

The present 1973 Constitution provides under its Declaration of Principles and State Policies (Article
11), that
 The State shall promote social justice to ensure the dignity, welfare, and security of
all the people. Towards this end, the State shall regulate the acquisition, ownership,
use, enjoyment, and disposition of private property, and equitably diffuse property
ownership and profits. (Section 6);

and

The State shall establish, maintain, and ensure adequate social services in the field
of education, health, housing, employment, welfare, and social security to guarantee
the enjoyment by the people of a decent standard of living. (Section 7).

The strictly governmental function of the SSS is spelled out unmistakably in Section 2 of R.A. No.
1161 entitled "The Social Security Act of 1954," thus:

It is hereby declared to be the policy of the Republic of the Philippines to develop,

establish gradually and perfect a social security system which shall be suitable to the
needs of the people throughout the Philippines, and shall provide protection against
the hazards of disability, sickness, old age and death.

As stated in the Explanatory Note to the Bill that became R. A. No. 1161, the Social Security Act of
1954:

It is a recognized principle in free societies that the State must help its citizens to
make provision for emergencies beyond their control, such as unemployment,
sickness requiring expensive medical treatment, and similar emergencies to a
greater or lesser degree by means of social security legislation in a variety of forms.

And this Court, in Roman Catholic Archbishop of Manila vs. SSS (L-15045, 1 SCRA 10 [1961]),
declared that "the Social Security Law was enacted pursuant to the 'policy of the Republic to
develop, establish gradually and perfect a social security system which shall be suitable to the needs
of the people throughout the Philippines and provide protection to employees against the hazards of
disability, sickness, old age and death' (Sec. 2, Republic Act No. 1161, as amended). Such
enactment is a legitimate exercise of the police power. It affords protection to labor, especially to
working women and minors, and is in full accord with the constitutional provisions on the 'promotion
of social justice to insure the well being and economic security of all the people.

It is interesting to note that aforesaid pronouncement of this Court was incorporated in the Social
Security Act (R.A. 1161) by Presidential Decree No. 24 issued on October 19, 1972. Thus, as
amended by said Decree, its section 2 now reads: "It is the policy of the Republic of the Philippines
to establish, develop, promote and perfect a sound viable 'tax exempt social security service suitable
to the needs of the people throughout the Philippines, which shall provide to covered employees and
their families protection against the hazards of disability, sickness, old age, and death, with a view to
promoting their well-being in the spirit of social justice" (emphasis supplied). And one of its
whereases expressly states that "the measure is necessary to effect reforms in SSS operations
and to revitalize its structure as an important agency in the promotion of the social and economic
development programs of the Government; ... (emphasis supplied).

Considering therefore that the establishment and maintenance of an adequate social security and
social services, which the Social Security System seeks to perform and achieve are functions
pursuant to the basic constitutional mandate directing the State to promote "social justice to insure
the well-being and economic security of all the people" (1935 Constitution) or "to insure the dignity,
welfare and security of all the people" as well as the police power of the State, the inescapable
conclusion is that the function of the SSS is and has always been governmental.

It thus becomes clear that petitioner Social Security System, under the obtaining facts and
applicable laws in the case, is not liable for the damages caused to private respondents by the
tortious acts of its officers and employees to whom the task done properly pertained.

A contrary rule as that enunciated in the majority opinion invites conspiracy between officials and
employees of the Social Security System and private parties to create financial liabilities against the
System. Its funds are public funds and more importantly trust funds, which must be protected.
G.R. No. L-26197           July 20, 1968

ADELO C. RIVERA, plaintiff-appellant,
vs.
SAN MIGUEL BREWERY CORPORATION, INC., defendant-appellee.

Francisco D. Alas, for plaintiff-appellant.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant-appellee.

CASTRO, J.:

This is an appeal from the decision dated December 10, 1965 of the Court of First Instance of
Misamis Oriental in civil case 2480. On June 18, 1964 Adelo C. Rivera — litigating as pauper — filed
with the municipal (now city) court of Cagayan de Oro a complaint against the San Miguel Brewery
Corporation, Inc. (hereinafter referred to as the Company) for collection of separation pay and
recovery of a sum of money, including actual, moral and exemplary damages and attorney's fees.
On July 15, 1964, the Company filed its answer, traversing the material allegations of the complaint.

On July 25, 1964 Rivera filed a request for admission of, inter alia, the fact that the plaintiff (Rivera),
like the other security guards of the Company, is not and was never a member of any labor union
with which the Company has or had a collective bargaining agreement.

On November 25, 1964 the city of Cagayan de Oro rendered judgment, as follows:  1äwphï1.ñët

This Court, after a careful consideration of the documentary evidence, oral and written
arguments of the parties as well, finds that the defendant has already paid its obligation to
the plaintiff in accordance with law; hence, for lack of merit, this case is hereby dismissed
with costs against the plaintiff.

Rivera appealed to the Court of First Instance of Misamis Oriental.

Instead of filing another answer, the Company, in its manifestation of January 26, 1965, adopted as
its answer that which it filed on July 15, 1964 with the city court.

On August 6, 1965, when the case was called for a pre-trial conference, the parties submitted a
stipulation of facts, quoted verbatim as follows:

ON THE FIRST CAUSE OF ACTION

1. For the first cause of action, the plaintiff is of legal age, resident of Corrales Avenue,
Cagayan de Oro City and the defendant is a domestic corporation with principal office at
Manila, Philippines and a plant at Cagayan de Oro City; .

2. Plaintiff was employed by the defendant Corporation on December 8, 1952 as a security

guard up to and including September 16, 1963, approximately 10 years and 9 months;.

3. On September 16, 1963 plaintiff was separated for physical disability due to illness as
shown by a letter of termination dated September 17, 1963 from the employer signed by Mr.
Vicente Pardo, Manager of the Cagayan Coca-Cola Plant which is already marked in the
records of this case as Exhibit C for the plaintiff; .
 4. At the time of plaintiff's separation from the service he was receiving a daily wage of P5.90
and in accordance with the Health, Welfare and Retirement Plan (Exhibit 1) [hereinafter
referred to as the private plan] of the defendant particularly Article 9 (Exhibit 1-A for the
Defendant), plaintiff was paid a total of P930.35 as retirement as shown in Exhibits A and B
for the Plaintiff which exhibits are also admitted by the defendant.

ON THE SECOND CAUSE OF ACTION

For the second cause of action paragraph 1 as submitted in the first cause of action, the
employer-employee relation is likewise admitted. As also stated in the first cause of action
the statement of accounts embodied in Exhibits A and B for the plaintiff are likewise
admitted; and as also admitted in the first cause of action the cause of termination of the
employee is as stated in Exhibit C for the plaintiff, the letter termination; that the employee
was not a member of the labor union; that the amount of P331.40 representing the
Defendant's contribution to the Social Security System during the period from September
1957 to March 1963 was deducted from Plaintiff's retirement benefits in accordance with
Article 15 (Exhibit 1-B) of the Defendant's Health, Welfare and Retirement Plan (Exhibit 1 for
the Defendant); and that the Health, Welfare and Retirement Plan Exhibit 1 of the defendant
is fully company financed, no contribution whatsoever from plaintiff was ever required.

On December 10, 1965 the Court of First Instance of Misamis Oriental rendered judgment, as
follows: .
1äwphï1.ñët

WHEREFORE, after a careful evaluation of the facts and the law respecting the matter,
judgment is hereby rendered in favor of the defendant Company and against the plaintiff
dismissing the latter's complaint with costs against him.

In this appeal to us, Rivera poses only one question of law — which is, whether the Company had
the right to deduct the amount of P331.40 from his retirement benefits and/or separation pay and
thus recover its contribution to the Social Security System — but assigns two errors, to wit:

1. The lower court erred in holding that section 9 of the Social Security Act authorizes the employer
to deduct from its employee's separation pay and/or retirement pay whatever it contributed to the
Social Security System insofar as the coverage of the said employee is concerned.

2. The lower court erred in giving force and validity to Article XV of the Company's private plan,
notwithstanding the provisions of section 19 of Republic Act 1161 as amended by Republic Acts
1792 and 2658.

The appellant's case must fall on both counts.

For unmistakable is the import of section 9 of the Social Security Act1 which expressly provides, inter
alia, that . 1äwphï1.ñët

. . . [P]rivate plans which are existing and in force at the time of compulsory coverage shall
be integrated with the plan of the System in such a way that where the employer's
contributions to his private plan is [sic] more than that required of him in this Act, he shall
pay to the System only the contribution required of him and he shall continue his
contributions to such private plan less his contribution to the System so that the employer's
total contribution to his private benefit plan and to the Social Security System shall be the
same as his contribution to his private plan before the compulsory coverage; Provided,
 further, That any changes, adjustments, modifications, eliminations or improvements in the
benefits to be available under the remaining private plan, which may be necessary to adopt
by reason of the reduced contribution thereto as a result of the integration, shall be subject to
agreements between the employers and employees concerned . . . (emphasis supplied)

The Company has a private benefit plan — its Health, Welfare and Retirement Plan — which is
wholly company financed because the employees do not contribute to its maintenance. The
Company has integrated its private plan with that of the Social Security System. It remitted to the
latter the contributions required of it for and in behalf of its employees — including the appellant
Rivera — but at the same time it has maintained its own private plan. It is not controverted that the
Company's contributions to its private benefit plan are greater than that required of it under the
Social Security Act. It has, therefore, the right to deduct its contributions to the System from the
benefits accruing to its employees under its private plan.

In the case at bar, the total of the retirement benefits due to Rivera under the private plan of the
Company was P1,261.75. But since the latter had paid the amount of P331.40 as its contribution to
the Social Security System for and in behalf of Rivera, it has therefore the right to deduct the latter
amount from the total amount of the retirement benefits, leaving a balance of P930.35, which latter
sum was paid to Rivera. Otherwise, the Company would be paying to the System and to its private
plan, both for the benefit of Rivera, the total amount of P1,593.15 — a fact situation not envisaged
by the aforequoted section 9 (of the Social Security Act) which emphatically stresses "that the
employer's total contribution to his private benefit plan and to the Social Security System shall be the
same as his contribution to his private plan before the compulsory coverage."

Besides, the authority of the Company to effect the said deduction is neither unilateral nor without
basis.  In compliance with the directive set forth in section 9, supra, that "any changes, adjustments,
1äwphï1.ñët

modifications, eliminations or improvements in the benefits to be available under the remaining

private benefit plan, which may be necessary to adopt by reason of the reduced contribution thereto
as a result of the integration, shall be subject to agreements between the employers and
employees", the Company incorporated into its private plan Article XV which provides:

The benefits provided in these Rules shall be reduced by such amounts as would be
sufficient to compensate the company for its (i.e., employer's) contribution for the account of
each employee to the Social Security System. However, beginning with the Company's
contributions corresponding to the month of April, 1963 the Company's contribution to the
Social Security System shall no longer be deducted from the benefits provided in these rules.
(emphasis supplied)

The private plan was set up by the Company pursuant to a collective bargaining agreement it
entered into with the union which represents the majority of its employees. It can therefore be
considered as an integral part of the said collective bargaining agreement, or in the very least, as an
independent collective bargaining agreement dealing exclusively with the health, welfare and
retirement of the employees. As such, it is binding on all employees of the Company — whether or
not union members — because a collective bargaining agreement is the law of the plant.2 Statutory
law firmly supports this holding because the labor organization designated or selected by a majority
of the employees in an appropriate bargaining unit is the exclusive representative of all the
employees in such unit for the purpose of collective bargaining."3

The appellant stresses the fact that he is not a member of the labor union, and in the process
impliedly argues that Article XV of the private plan is not binding on him. Assuming that he is correct,
that is, he is not bound by the terms of the private plan, then it is only just and logical that its benefits
be withheld likewise from him. But decisional law frowns upon this, the cases being unanimous that .
 When a collective bargaining contract is entered into by the union representing the
employees and the employer, even the non-member employees are entitled to the benefits
of the contract. To accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members.4

The rationale behind the extension of the benefits of a collective bargaining agreement even to non-
union members — as underscored by the abovecited jurisprudential touchstone — is to preclude
undue discrimination against them. This same ruling does not and should not in turn justify any
discriminatory treatment against union members, a result which is certain to follow if the appellant
were to receive the benefits flowing from the private plan of the Company, sans the burden imposed
on the recipient by the aforequoted Article XV. His readiness to receive the benefits accruing to him
under the said private plan should be matched by his willingness to bear the burdens concomitant
thereto, one of which is the reduction of the benefits owing to him up to the amount sufficient to
compensate the Company for its (employer's) contributions (for his account) to the Social Security
System.

Finally, the appellant's stand that Article XV of the Company's private plan flies in the teeth of section
19 of the Social Security Act, is untenable. This section expressly provides:

Employer's contribution. — Beginning as of the last day of the month when an employee's
compulsory coverage takes effect and every month thereafter during his employment, his
employer shall pay, with respect to such covered employee, the employer's contribution in
accordance with the schedule indicated in Section eighteen of this Act. Notwithstanding any
contract to the contrary, an employer shall not deduct, directly or indirectly, from the
compensation of his employees covered by the System or otherwise recover from them the
employer's contribution with respect to such employees.

It is clear, from a close scrutiny of the last sentence of the abovecited section, that what is prohibited
is the deduction of the employer's contribution from the compensation of his employees, or the
recovery from said employees of the employer's contribution to the System with respect to their
coverage. Stated otherwise, what is enjoined is any employer's scheme to make his employees
shoulder his burden of paying to the System the employer's contribution required by the Social
Security Act.5

There is no such scheme, in the case at bar, of passing the employee's burden because the
retirement pay of the appellant is not in the category of a compensation, but is a fringe
benefit proceeding from the Company's private plan. Moreover, the Company does not seek to
recover from the appellant the former's contribution with respect to the latter. It is merely deducting
the same from what it pays to the private plan which it has set up and is, singlehandedly maintaining,
and which it has integrated with the System.

For, indeed, to allow the appellant to enjoy the full amount of retirement pay under the private plan
and all the benefits due to him under the Social Security Act without spending any single centavo —
and conversely, to prohibit the Company from making the corresponding deduction from such
benefits of its contributions to the Social Security System in behalf of the appellant — is to sanction
an inequitable situation that runs roughshod over the universally accepted maxim against unjust
enrichment: "nemo cum alterius, detrimenti locupletari potest."

ACCORDINGLY, the judgment a quo is affirmed. No costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Angeles and Fernando, JJ.,
concur.
Footnotes