Philippine Blooming Mills Co., Inc. vs. Social Security System

SSS membership is a legal imposition under the State's police power, not a bilateral consensual contract, and the constitutional prohibition against impairment of obligations of contract is not a proper defense against amendments to SSS rules; further, administrative rules that expressly provide for effectivity upon presidential approval take effect on that date, and delayed publication in the Official Gazette does not alter the date of effectivity.

Philippine Blooming Mills Co., Inc., a domestic corporation, had employed Japanese technicians under pre-arranged contracts of employment with a minimum term of six months and a maximum of 24 months since the start of its operations in 1957. Republic Act 1161 required compulsory coverage of employers and employees under the Social Security System, and the SSS promulgated Rules and Regulations implementing the Act, including provisions governing the coverage of aliens and the effect of separation from employment. The Rules expressly authorized the Commission to amend them, with any amendment to take effect upon approval by the President of the Philippines.

Philippine Blooming Mills Co., Inc., a domestic corporation, had been employing Japanese technicians under pre-arranged contracts of employment since the start of its operations in 1957, the minimum period of which employment was six months and the maximum 24 months. From April 28, 1957, to October 26, 1958, the corporation had in its employ six Japanese technicians: Susumu Sonoda, Senji Tanaka, Kahei Tanaka, Takashiko Kumamoto, Hitoshi Nakamura, and Tetsuo Kudo. In connection with the employment of these aliens, the corporation sent an inquiry to the Social Security System on August 24, 1957, asking whether these employees were subject to compulsory coverage under the System. The First Deputy Administrator of the SSS, by letter dated August 29, 1957, answered that aliens employed in the Philippines shall be compulsorily covered, but aliens employed temporarily shall, upon their departure from the Philippines, be entitled to a rebate of a proportionate amount of their contributions, with their employers entitled to the same proportionate rebate.

Starting September 1957, and until the Japanese employees left the Philippines on October 26, 1958, the corresponding premium contributions of the employer and the employees were remitted to the SSS. The employees each contributed 2.5% of their monthly salaries, while the employer contributed 3.5%, totaling ₱2,520.00 in aggregate premiums. On October 7, 1958, the Assistant General Manager of the corporation, on its behalf and as attorney-in-fact of the Japanese technicians, filed a claim with the SSS for refund of the premiums paid, on the ground of termination of the members' employment. This claim was denied.

The petitioners then filed a petition with the Social Security Commission for the return or refund of the premiums in the total sum of ₱2,520.00, plus attorney's fees. The SSS controverted the claim, alleging that Rule IX of the Rules and Regulations of the System, as amended, required membership in the System for at least two years before a separated or resigned employee could be allowed a return of his personal contributions, and that the employer was likewise not entitled to a refund. After hearing, the Commission denied the petition. It found that although the original Section 3(d) of Rule I granted temporarily employed aliens and their employers a proportionate rebate upon departure, that provision had been eliminated by amendment, which became effective on January 14, 1958 — before the employment of the subject aliens terminated. Under the amended rules, the rights of separated employees were governed by Rule IX, which allowed a return of premiums only after at least two years of membership.

• Impairment of Obligations of Contract: Petitioners contended that the amendment of the SSS Rules and Regulations, insofar as it eliminated the provision on the return of premium contributions originally embodied in Section 3(d) of Rule I, constituted an impairment of obligations of contract. They argued that when the employees became members in September 1957 and paid the corresponding premiums, they did so subject to the condition that upon their departure from the Philippines, both the employees and the employer would be entitled to a rebate of a proportionate amount of their respective contributions.

• Two-Year Membership Requirement: Respondent countered that Rule IX of the Rules and Regulations of the SSS, as amended, required membership in the System for at least two years before a separated or resigned employee could be allowed a return of his personal contributions, and that under the same rule the employer was not entitled to a refund of the premium contributions it had paid.
• Due Process in Implementation: Respondent, through the Solicitor General, framed the proper issue as whether, in implementing the SSS law and denying petitioners' claim for refund, due process was observed — shifting the inquiry away from the non-impairment clause toward the validity of the rule-making and amendment process.

• Non-Impairment of Obligations of Contract: Whether the amendment of the SSS Rules and Regulations eliminating the rebate provision for temporarily employed aliens constituted an impairment of obligations of contract.
• Effectivity of Amended Rules: Whether the amended SSS rules were binding on the petitioners given that the amendment was approved by the President on January 14, 1958, but was published in the Official Gazette only in November 1958, after the employees' employment had ceased.

• Non-Impairment of Obligations of Contract: No. SSS membership is a legal imposition under the State's police power, not a bilateral consensual contract, and the constitutional prohibition against impairment of obligations of contract is not a proper defense against amendments to SSS rules.
• Effectivity of Amended Rules: Yes, the amended rules were binding. The original SSS Rules expressly provided that any amendment would take effect on the date of approval by the President; consequently, the delayed publication in the Official Gazette did not affect the date of effectivity, which was January 14, 1958.

• Non-Impairment of Obligations of Contract: Petitioners' argument rested on the theory that the employees' membership in the SSS established a contractual relationship between the members and the System in the sense contemplated and protected by the constitutional prohibition against impairment of obligations of contract. This theory was rejected because membership in the SSS is not the result of a bilateral, consensual agreement where the rights and obligations of the parties are defined by and subject to their will. Republic Act 1161 requires compulsory coverage of employers and employees under the System; it is a legal imposition designed to provide social security to workingmen. Membership in the SSS is therefore in compliance with a lawful exercise of police power, to which the principle of non-impairment of obligations of contract is not a proper defense. The rebate provision in the original Section 3(d) of Rule I was merely one of several "general principles" to guide the Commission in determining the scope of compulsory coverage — not a vested contractual right.

• Effectivity of Amended Rules: The amended rules were promulgated pursuant to the rule-making authority granted in Section 4(a) of Republic Act 1161, and the original Rules expressly provided in Rule XI that any amendment adopted by the Commission would take effect on the date of its approval by the President. The amendment eliminating the rebate provision was approved by the President on January 14, 1958. Under Article 2 of the Civil Code, the date of publication in the Official Gazette is material for determining effectivity only if the statutes themselves do not provide for their own effectivity. Because the SSS Rules themselves specified that amendments take effect upon presidential approval, the delayed publication in the November 1958 issue of the Official Gazette did not affect the date of effectivity. When the Japanese technicians were separated from employment in October 1958, the governing rule was therefore Rule IX of the amended Rules, which required at least two years of membership before a refund of premiums could be allowed — a condition the technicians, who had been members only since September 1957, did not satisfy.

• Police Power and Non-Impairment of Obligations of Contract — The constitutional prohibition against impairment of obligations of contract does not apply to relationships created by legal imposition under the State's police power. SSS membership is compulsory under Republic Act 1161 and is not the product of a bilateral, consensual agreement; it is a legal imposition designed to provide social security to workingmen. Because membership arises from police power, not from contract, amendments to the rules governing membership and benefits cannot be challenged as impairments of contractual obligations.

• Effectivity of Administrative Rules and Regulations — Administrative rules and regulations promulgated pursuant to statutory authority have the force and effect of statute. Where the rules themselves expressly provide that amendments take effect upon approval by the President, the date of effectivity is the date of such approval, and delayed publication in the Official Gazette does not alter that date. Article 2 of the Civil Code — providing that laws take effect after fifteen days following publication in the Official Gazette — applies only if the statute or rule itself does not otherwise provide for its effectivity.

• "Membership in the SSS is, therefore, in compliance with a lawful exercise of police power of the State, to which the principle of non-impairment of the obligation of contract is not a proper defense." — This passage states the ratio decidendi on the non-impairment issue, establishing that compulsory SSS coverage is an exercise of police power immune from contract-impairment challenges.

• "[U]nder Article 2 of the Civil Code, the date of publication of laws in the Official Gazette is material for the purpose of determining their effectivity, only if the statutes themselves do not so provide." — This passage articulates the rule for determining the effectivity of administrative regulations that contain their own effectivity clauses, distinguishing them from statutes that rely solely on the Civil Code publication rule.

• "[T]he delayed publication of the amended rules in the Official Gazette did not affect the date of their effectivity, which is January 14, 1958, when they were approved by the President." — This passage applies the effectivity rule to the facts, concluding that the amended SSS rules were already in force when the technicians' employment terminated in October 1958.

• U.S. vs. Tupasi Molina, 29 Phil. 119 — Cited for the proposition that rules and regulations promulgated in implementation of a law have the force and effect of statute, as acknowledged in the decision.

• People vs. Que Po Lay, G.R. No. L-6791, March 29, 1954 — Cited as referencing the Tupasi Molina doctrine on the statutory force of administrative rules and regulations.

• Republic Act 1161 (Social Security Act of 1954) — The statute requiring compulsory coverage of employers and employees under the SSS. Section 4(a) granted the Commission rule-making authority to promulgate the Rules and Regulations implementing the Act. The Court relied on the compulsory nature of coverage under this law to characterize SSS membership as a legal imposition under police power rather than a consensual contract.

• Article 2, Civil Code — Provides that laws shall take effect after fifteen days following completion of publication in the Official Gazette, unless it is otherwise provided. The Court held this provision applicable only when the statute or rule itself does not specify its own effectivity date; because the SSS Rules expressly provided that amendments take effect upon presidential approval, Article 2's publication-based rule did not control.

• Constitution — Non-Impairment of Obligations of Contract — The constitutional prohibition invoked by petitioners. The Court held it inapplicable because SSS membership arises from police power, not from contract.

Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, and Castro, JJ., concurred. Reyes, J.B.L., J., reserved his vote. Regala, J., was on leave.