[ G.R. No. 260428. March 01, 2023 ] 937 Phil. 447
SECOND DIVISION
[ G.R. No. 260428. March 01, 2023 ]
CLARITA D. ACLADO, PETITIONER, VS. GOVERNMENT SERVICE INSURANCE SYSTEM, RESPONDENT. D E C I S I O N
LAZARO-JAVIER, J.:
The Case
This Petition for Review on Certiorari[1] assails the following dispositions of the Court of Appeals in CA-G.R. SP No. 163904, entitled Clarita D. Aclado v. Government Service Insurance System, viz.:
Decision[2] dated June 3, 2021, upholding Resolution No. 100 dated July 9, 2019 and Resolution No. 169 dated November 12, 2019 of the Board of Trustees of the Government Service Insurance System (GSIS) in GSIS Case No. 007-19, which dismissed petitioner Clarita D. Aclado’s appeal from the Decision dated January 15, 2019 of the GSIS Committee on Claims in COC Case No. 23-08-2018; and
Resolution[3] dated April 5, 2022, denying petitioner’s motion for reconsideration.
Antecedents
Petitioner was a public school teacher in Em’s Signal Village Elementary School. She applied for and was granted several loans on various dates.[4] On August 19, 2015, the GSIS National Capital Region (NCR) Department II sent her a collection letter, informing her that she was among the active members verified with past due accounts.[5]
On August 5, 2016, she retired from the service, albeit her loan accounts remained unpaid. Consequently, the same were subjected to interest on arrears at the rate of 12% per annum compounded monthly and a penalty of 6% per annum compounded monthly.[6] She also did not avail of the Consolidated Loan Program prior retirement in order to waive penalties incurred despite advice from GSIS. When her retirement claim was consequently processed, her cash surrender value (CSV) resulted in zero proceeds.[7] Her retirement benefits under Option 1 pursuant to Republic Act No. 8291[8] nonetheless had net proceeds amounting to PHP 163,322.96.[9]
On December 5, 2016, she submitted a member’s request form (MRF), denying that she ever availed of the Emergency Loan Assistance (ELA) and Summer One Month Salary Loan (SOS) for which she was being charged by GSIS. Too, she requested scanned copies of the loan applications and physical checks.[10] On December 13, 2016, she even filed a complaint via GSIS Hotline 8888 to reiterate that she never availed of the said loans.[11]
On December 12, 2016, she filed another MRF, this time, requesting for a refund of her loan overpayments. In several letters sent to her by GSIS NCR Department II, she was informed of the favorable action on her request for refund, including the action of GSIS crediting to her account the corresponding amount. As for her ELA and SOS accounts, she was furnished copies of the negotiated checks representing her receipt thereof.[12] On January 3, 2017, she also received letters from the GSIS informing her that her loan accounts were considered to have been fully paid after the unpaid loans and interests had been deducted from her retirement benefits and CSV claim.[13]
From January 2017 to April 2018, she exchanged correspondence with the GSIS NCR Department III reiterating her request to lower the interest on arrears and penalties. This, however, was denied on the following grounds: first, there were no recorded monthly payments remitted for her SOS, Enhanced Salary Loan (ESL), ELA, and Educational Assistance Loan (EAL) accounts; and second, Board Resolution No. 97 was already used to reduce the interest on arrears imposable on her loan accounts, resulting in the refund of excess payment for her E-card Cash Advance (ECP) and ESL accounts amounting to PHP 139,075.28.[14]
On July 24, 2018, the GSIS NCR Department II Acting Vice President Leah Melisa De Leon reiterated the denial of petitioner’s request.[15] Hence, petitioner appealed to the GSIS Committee on Claims (COC).[16]
Ruling of the GSIS COC
By Decision[17] dated January 15, 2019, the GSIS COC denied petitioner’s request, viz.:
WHEREFORE, premises considered, the request of Clarita D. Aclado (Claimant) to lower the interest on arrears and penalties imposed on her various loan accounts, i.e., Enhanced Salary Loan (ESL), Emergency Loan (EML), Summer One Month Salary Loan (SOS), Emergency Loan Assistance (ELA), ECARD Cash Advance (ECP) and Educational Assistance Loan (EAL) is hereby DENIED.[18] (Emphasis in the original)
The GSIS COC explained that there was no basis to further reduce the interest on arrears and penalties on petitioner’s loan accounts considering the condonation made on the additional surcharges and portion of the interest thereon up to December 31, 2007 per Board Resolution No. 97. In any case, her excess loan payments in the total amount of PHP 139,075.28 had already been refunded to her account after due reconciliation.[19]
Petitioner thus further appealed to the Office of the Corporate Secretary (OCS) of the GSIS Board of Trustees.[20]
Ruling of the GSIS Board of Trustees
Under Board Resolution No. 100[21] dated July 9, 2019, the GSIS Board of Trustees denied petitioner’s appeal for having been filed out of time. Under Section 5, Rule 3 of Policy and Procedural Guidelines No. 300-15[22] and Section 26.2 of Rule V of the Revised Implementing Rules and Regulations of Republic Act No. 8291, she had 60 calendar days from receipt of the COC Decision to file her appeal. Records showed that she received a copy thereof on January 17, 2019, giving her until March 18, 2019 to file her petition.[23] But she only filed the appeal more than one month after the deadline. In any event, the COC had already decided on the merits of her petition.[24]
Under Resolution No. 169[25] dated November 12, 2019, the GSIS Board of Trustees denied petitioner’s motion for reconsideration.
Ruling of the Court of Appeals
By its assailed Decision[26] dated June 3, 2021, the Court of Appeals denied petitioner’s appeal and affirmed the assailed resolutions of the GSIS Board of Trustees.[27] It agreed that petitioner’s appeal was filed only 38 days after the deadline. Thus, the COC Decision had already attained finality, hence, had become immutable.[28] By Resolution[29] dated April 5, 2022, the Court of Appeals denied petitioner’s motion for reconsideration.
The Present Petition
Petitioner now seeks affirmative relief from the Court and prays that the assailed dispositions of the Court of Appeals be set aside and a new one rendered, granting her request to reduce the interest and arrears imposed on her various loan accounts.[30]
Petitioner posits that a copy of the COC Decision was sent to her Taguig address though her actual residence is in Mariveles, Bataan. As a result, she only knew of the Decision on March 13, 2019 when she visited her home in Taguig and received the copy from her daughter. At the time, she was not yet assisted by counsel,[31] so she filed her petition within 60 days from her actual receipt of the COC Decision as she understood the notice in lay terms. She is entitled to a reduction of the interest on arrears and penalties imposed on her various loan applications since the interests imposed by GSIS are unreasonable and unconscionable.[32]
The GSIS riposted that petitioner’s case is not exceptionally meritorious so as to warrant exception to procedural rules. Without justifiable cause, she thus already lost her right to appeal and the COC Decision already attained finality on March 18, 2019.[33]
Issues
Has the COC Decision dated January 15, 2019 attained finality?
Is petitioner entitled to the reduction of interest and penalties on her loan accounts with GSIS?
Our Ruling
We grant the petition.
Petitioner’s case merits relaxation of the doctrine of immutability of judgment and rules of procedure
The GSIS asserts that the COC Decision dated January 15, 2019 had become final in view of petitioner’s failure to perfect her appeal within the 60-day reglementary period. Consequently, the doctrine of finality of judgment or immutability of judgment allegedly controls.
On this score, it is basic that judgments or orders become final and executory by operation of law and not by judicial declaration. Thus, finality of a judgment becomes a fact upon the lapse of the reglementary period of appeal if no appeal is perfected or a motion for reconsideration or new trial is filed.[34]
Under the doctrine of immutability of judgment, a decision that has acquired finality becomes immutable and unalterable, and may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law, and whether it be made by the court that rendered it or by the Highest Court of the land. Any act which violates this principle must immediately be struck down.[35]
But this rule is not absolute. For the Court has the power and prerogative to relax the same in order to serve the demands of substantial justice considering: (a) matters of life, liberty, honor, or property; (b) the existence of special or compelling circumstances; (c) the merits of the case; (d) a cause not entirely attributable to the fault or negligence of the party favored by the suspension of the rules; (e) the lack of any showing that the review sought is merely frivolous and dilatory; and (f) that the other party will not be unjustly prejudiced thereby.[36]
What is at stake here are petitioner’s hard-earned retirement benefits painstakingly earned throughout her years of service as a public school teacher. We thus cannot allow the case to be disposed of on mere procedural grounds. A relaxation of the doctrine of immutability of judgment is therefore apropos to further the higher interest of substantial justice.
On this score, the GSIS Board of Trustees should have reckoned with the Revised Implementing Rules and Regulations of Republic Act No. 8291 under Section 33, Rule V, ordaining it to dispose of cases based on the merits in order to promote justice and equity rather than dismiss the same altogether based on procedural grounds, viz.:
Section 33. General Principles in Hearing and Determination of Cases. – The proceedings before the hearing officer shall be summary and non-litigious in nature and the technicalities of law and procedure and the rules obtaining in the courts shall not strictly apply.
In the hearing, investigation and determination of any question or controversy, and in exercising any duty or power under the law and this Rule, the Board or Hearing Officer shall act on the merits of the case with the end in view of promoting justice and equity. (Emphasis and underscoring supplied.)
Verily, the GSIS Board of Trustees gravely erred when it mainly based its decision against petitioner on mere procedural technicality, i.e., petitioner’s belated appeal. Worse, it brushed aside its duty to render an independent ruling on the merits of petitioner’s request by reasoning that the COC had anyway already passed upon the issue.
Admittedly, petitioner filed her appeal only 38 days after the reglementary period had already lapsed. Nonetheless, we have held that liberality in the application of procedural rules is warranted where the erring party: (a) shows reasonable cause justifying his/her non-compliance with the rules; (b) convinces the Court that the outright dismissal of the petition would defeat the administration of substantive justice; and (c) offer proof of at least a reasonable attempt at compliance therewith.[37]
A relaxation of procedural rules must be allowed in this case.
First. Petitioner convincingly justified her failure to comply with the rules. She cannot be faulted for the delay since her sister-in-law and her daughter did not tell her that they received the COC Decision on January 17, 2019. Sans such notice, she could not have known that the Decision was already available since she resides in Mariveles, Bataan while a copy thereof was sent to Taguig.[38]
Too, she was unassisted by counsel. As a lay person, she would not have understood that the reglementary period to appeal is reckoned from the date of receipt of the decision and not the date of actual knowledge thereof. Notably, the assistance of legal counsel is not required in proceedings before the GSIS.[39] Accordingly, technicalities of law and procedure and the rules obtaining in courts do not strictly apply thereto.[40]
Second. To reiterate, the outright dismissal of the petition based merely on a procedural infirmity defeats the administration of substantial justice. For petitioner will be deprived of a substantial portion of her retirement benefits without even considering the merits of her request.
Lastly. Petitioner reasonably complied with the rules since she strived – and in fact, did – file her appeal within 60 days from receipt of the COC Decision, though her understanding thereof may have been incorrect.
In fine, the GSIS should have entertained her appeal and looked into the propriety of reducing the interest on arrears and penalties on petitioner’s loan accounts notwithstanding her belated appeal.
Petitioner is entitled to reduction of interest on arrears and penalties on her loan accounts
The power of courts to reduce iniquitous and unconscionable interests and penalties is well-settled. Articles 1229 and 2227 of the Civil Code are clear on this wise, viz.:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Article 2227. Liquidated damages, whether intended as an indemnity or penalty, shall be equitably reduced if they are iniquitous or unconscionable. (Emphases supplied.)
The question of whether a penalty is reasonable or iniquitous is subject to the sound discretion of the courts. In arriving at such determination, the courts may consider factors such as, but not limited to: the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like.[41]
Under the circumstances, the Court is constrained to declare the interest on arrears equivalent to 12% per annum compounded monthly and penalty equivalent to 6% per annum compounded monthly imposed by the GSIS on petitioner’s loans as unreasonable, iniquitous, and unconscionable.
In Lo v. Court of Appeals,[42] the Court found the penalty of PHP 5,000.00 per day of delay or PHP 150,000.00 per month, i.e., five times the monthly rent, as exorbitant and unconscionable, especially considering that the delay in surrendering the leased premises was due to the lessee’s mistaken yet well-founded belief that its right to pre-emption to purchase the subject property had been violated. More important, considering that the lessee is an agricultural cooperative collectively owned by farmers with limited resources, ordering it to pay a penalty of PHP 150,000.00 per month on top of the monthly rent would deplete its income and drive it to bankruptcy.
We draw analogy from the circumstances in Lo here.
First. There is an enormous disparity between the gross loan amount and the total amount due for each of petitioner’s loan accounts due to the accumulated interests and penalties imposed and compounded thereto each month, viz.:[43]
Loan Account
Gross Loan Amount
Total Amount Due
Emergency Loan (EML) PHP 7,500.00 (granted on 01/05/1996) - with partial payment PHP 23,232.33 Summer One Month Salary Loan (SOS) PHP 10,971.00 (granted on 03/26/2004) - no payments made PHP 62,898.69 Enhanced Salary Loan (ESL) PHP 81,552.00 (granted on 12/22/2000) - no payments made
PHP 443,432.04 Emergency Loan Assistance (ELA) PHP 10,000.00 (granted on 10/30/2003) - no payments made
PHP 58,958.95 Educational Assistance Loan (EAL) PHP 4,000.00 (granted on 05/31/2012) - no payments made
PHP 4,980.00 Regular Policy Loan (PRG) PHP 23,655.83 (granted on 12/14/2015) - no payments made
PHP 24,986.55 E-Card Cash Advance Loan (ECP) PHP 10,000.00 (granted on 05/02/2007) - with partial payment
PHP 19,684.03 TOTAL PHP 147,678.83
PHP 638,172.59
To say however that the difference is enormous is an absolute understatement. For petitioner’s total gross loan amount ballooned from PHP 147,678.83 to the shocking amount of PHP 638,172.59. Framed differently, GSIS collected 432.135% more than the amount petitioner actually received as loan – this, despite several partial payments on some of the accounts.
In Mondragon International v. Union Bank,[44] we declared as iniquitous and unconscionable the stipulated penalty charge of 2% per month or 24% per annum in addition to the regular interests. Too, in Palmares v. Court of Appeals,[45] we pronounced as iniquitous and unconscionable the 3% penalty charge on the PHP 30,000.00 loan on top of the 6% interest per annum compounded monthly. Finally, in State Investment House, Inc. v. Court of Appeals,[46] the Court disallowed the payment of the deficiency amount altogether because it found that the principal obligation would not have ballooned to the horrendous amount of PHP 4.8 million if not for the iniquitous and unconscionable penalty charge of 3% per month or 36% per annum.
Similarly, in this case, petitioner’s principal loan obligations would not have ballooned to the staggering amount of PHP 638,172.59 if not for the exponential effect of the compounded interest on arrears added each month on top of the compounded penalty added each month. In other words, interest on interest on interest was added to petitioner’s unpaid balance per month.
Worse, GSIS did so without prior notice or demands to pay.
Second. Petitioner mistakenly believed that she already settled some of her accounts,[47] and, in fact, overpaid her loans[48] because GSIS did not notify her of her delinquencies and of the fact that it had begun imposing compounded interest on arrears, surcharges, and penalties on her unpaid balances.
On this score, GSIS claims that petitioners’ loans were due and demandable at the time her CSV claim and retirement benefits were processed because the same remained unpaid at the end of their respective loan terms.[49] In fact, there were no recorded monthly payments remitted for her SOS, ESL, ELA, and EAL accounts.[50] Interest on arrears and penalties were thus allegedly correctly imposed.
As aptly raised by Justice Mario V. Lopez during the deliberation, petitioner’s loans with GSIS are obligations with periods or “obligations for whose fulfillment a day certain has been fixed."[51] GSIS thus correctly surmised that petitioner’s loans have become due and demandable at the end of their respective terms. This, however, did not automatically entitle GSIS to impose interest on arrears and penalties on the unpaid balances.
Article 2209 of the Civil Code[52] indeed allows creditors like GSIS to collect interest by way of damages, such as interest on arrears and penalties, whenever the debtor defaults or incurs in delay in the payment of his or her debt. However, before a debtor may be declared in default, it is necessary that all the following requisites must be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) the creditor requires the performance judicially or extrajudicially. Default only begins from the moment the creditor demands the performance of the obligation.[53]
Thus, in SSS v. Moonwalk Development,[54] the Court declared that respondent was never in default because petitioner never compelled performance of its loan obligation but immediately yet wrongfully enforced payment by foreclosing respondent’s real estate mortgage without prior notice and demand to pay. Consequently, petitioner therein was not entitled to recover any penalty without such prior demand.
Here, there is no showing that GSIS sent prior demands to pay, in whatever form, to petitioner each time any of her accounts remained unpaid at the end of each loan term. Petitioner was not even aware that no payments were remitted to some of her accounts. Therefore, she cannot be considered in default. Plain and simple, GSIS consequently had no right to impose interest on arrears and penalties on petitioner’s unsettled balances notwithstanding the expiration of the respective loan terms thereof. While there are exceptions to the requirement of prior demand,[55] none was established to apply here.
Petitioner may only be considered in default upon her receipt of GSIS’ collection letter dated August 19, 2015 notifying her of her past due accounts.[56] For it was only then that her attention was called on her delinquencies and was given a fair opportunity to contest or remedy the same.
Third. If the Court upholds the 12% interest on arrears per annum compounded monthly and 6% penalty per annum compounded monthly on top of the principal loan amount and stipulated monetary interest collected from petitioner, we will not only turn a blind eye to the patent unfairness, nay, injustice, by which GSIS treated her request but also rob her of decades-worth of benefits. This we cannot allow.
Petitioner was a public school teacher who had been in service for several decades. It is unfortunate that she was left with only the meager amount of PHP 163,322.96[57] in exchange for several decades of long and difficult service. Worse, when she finally contested the same, she was shunned by GSIS based on mere procedural grounds. As of this date, it has been more than six years since petitioner retired. It is high time that GSIS returns to her what is due.
All told, in furtherance of the higher interests of justice, fairness, and equity, GSIS shall waive the 12% interest on arrears per annum on the unpaid balances of petitioner’s loans. It shall impose only the penalty of 6% interest per annum, which shall not be compounded and which shall be due only from the date petitioner was considered in default, i.e., date the collection letter dated August 19, 2015 was received until the outstanding balances were deducted from her CSV claims and retirement benefits.
After computation, GSIS shall immediately return to petitioner the excess amounts deducted from her benefits, subject to 6% interest per annum from the date of finality of this Decision until full payment, in accordance with prevailing jurisprudence.[58]
We find no reasons which may preclude GSIS from granting such waiver as it can, and has in fact, on previous occasions, waived penalties and surcharges on due accounts, e.g., in cited Resolution No. 48 per COC Decision dated January 15, 2019. Too, our pronouncement in SSS v. Moonwalk Development,[59] is apropos, viz.:
It is admitted that when a government created corporation enters into a contract with a private party concerning a loan, it descends to the level of a private person. Hence, the rules on contract applicable to private parties are applicable to it. The argument therefore that the Social Security Commission cannot waive or condone the penalties which was applied in the United Christian Missionary Society cannot apply in this case. First, because what was not paid were installments on a loan but premiums required by law to be paid by the parties covered by the Social Security Act. Secondly, what is sought to be condoned or waived are penalties not imposed by law for failure to remit premiums required by law, but a penalty for non-payment provided for by the agreement of the parties in the contract between them . . .” (Emphases supplied).
So must it be.
ACCORDINGLY, the Petition is GRANTED. The Decision dated June 3, 2021 and Resolution dated April 5, 2022 of the Court of Appeals in CA-G.R. SP No. 163904 are REVERSED.
Respondent Government Service Insurance System is ORDERED to:
WAIVE the interest on arrears equivalent to 12% per annum on petitioner’s unpaid loan balance; CHARGE on petitioner Clarita D. Aclado’s unpaid loan balances the penalty equivalent to 6% per annum, which shall not be compounded, only from the date petitioner was considered in default, i.e., date of receipt of the collection letter dated August 19, 2015; and RETURN to petitioner Clarita D. Aclado, upon computation, the excess payments on her loan accounts subject to 6% interest per annum from finality of this Decision until full payment.
SO ORDERED.
Leonen, SAJ. (Chairperson), M. Lopez, J. Lopez, and Kho, Jr., concur.