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Republic vs Asiapro Cooperative (2007) G.R.

172101

Facts:
Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws, ownersmembers are of two categories, to wit: (1) regular member, who is entitled to all the rights and privileges
of membership; and (2) associate member, who has no right to vote and be voted upon and shall be
entitled only to such rights and privileges provided in its by-laws, Its primary objectives are to provide
savings and credit facilities and to develop other livelihood services for its owners-members. In the
discharge of the aforesaid primary objectives, respondent cooperative entered into several Service
Contracts with Stanfilco - a division of DOLE Philippines, Inc. and a company based in Bukidnon.The
owners-members do not receive compensation or wages from the respondent cooperative. Instead, they
receive a share in the service surplus which the respondent cooperative earns from different areas of
trade it engages in, such as the income derived from the said Service Contracts with Stanfilco. The
owners- members get their income from the service surplus generated by the quality and amount of
services they rendered, which is determined by the Board of Directors of the respondent cooperative.
In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of the
respondent cooperative, who were assigned to Stanfilco requested the services of the latter to register
them with petitioner SSS as self-employed and to remit their contributions as such. Also, to comply with
Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282, the SSS contributions of
the said owners-members were equal to the share of both the employer and the employee.
On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division, Atty.
Eddie A. Jara, sent a letter to the respondent cooperative, addressed to its Chief Executive Officer (CEO)
and General Manager Leo G. Parma, informing the latter that based on the Service Contracts it executed
with Stanfilco, respondent cooperative is actually a manpower contractor supplying employees to
Stanfilco and for that reason, it is an employer of its owners-members working with Stanfilco.Thus,
respondent cooperative should register itself with petitioner SSS as an employer and make the
corresponding report and remittance of premium contributions in accordance with the Social Security
Law of 1997.On 9 October 2002, respondent cooperative, through its counsel, sent a reply to petitioner
SSSs letter asserting that it is not an employer because its owners-members are the cooperative itself;
hence, it cannot be its own employer.Again, on 21 October 2002 petitioner SSS sent a letter to
respondent cooperative ordering the latter to register as an employer and report its owners-members as
employees for compulsory coverage with the petitioner SSS.Respondent cooperative continuously
ignored the demand of petitioner SSS.
Accordingly, petitioner SSS, on 12 June 2003, filed a Petition before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent cooperatives owners-members
as covered employees under the compulsory coverage of SSS and to remit the necessary contributions
in accordance with the Social Security Law of 1997.The same was docketed as SSC Case No. 6-1550703. Respondent cooperative filed its Answer with Motion to Dismiss alleging that no employer-employee

relationship exists between it and its owners-members, thus, petitioner SSC has no jurisdiction over the
respondent cooperative.Stanfilco, on the other hand, filed an Answer with Cross-claim against the
respondent cooperative.
Issue: Whether the petitioner SSC has jurisdiction over the petition-complaint filed before it by petitioner
SSS against the respondent cooperative.
Held: Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as in
Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.
Section 5 of Republic Act No. 8282 provides:
SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or any other matter related thereto, shall be cognizable
by the Commission, x x x.(Emphasis supplied.)
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:
Section 1.Jurisdiction. Any dispute arising under the Social Security Act with respect to coverage,
entitlement of benefits, collection and settlement of contributions and penalties thereon, or any other
matter related thereto, shall be cognizable by the Commission after the SSS through its President,
Manager or Officer-in-charge of the Department/Branch/Representative Office concerned had first taken
action thereon in writing.(Emphasis supplied.)
It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of
the SSS is well within the exclusive domain of the petitioner SSC.It is important to note, though,
that the mandatory coverage under the SSS Law is premised on the existence of an employeremployee relationship except in cases of compulsory coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in
the Motion to Dismiss, determine which court has jurisdiction over an action; otherwise, the
question of jurisdiction would depend almost entirely upon the defendant. Moreover, it is wellsettled that once jurisdiction is acquired by the court, it remains with it until the full termination of the case.
The said principle may be applied even to quasi-judicial bodies.
In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC against the
respondent cooperative and Stanfilco alleges that the owners-members of the respondent cooperative
are subject to the compulsory coverage of the SSS because they are employees of the respondent
cooperative.Consequently, the respondent cooperative being the employer of its owners-members must
register as employer and report its owners-members as covered members of the SSS and remit the
necessary premium contributions in accordance with the Social Security Law of 1997. Accordingly, based
on the aforesaid allegations in the petition-complaint filed before the petitioner SSC, the case clearly falls
within its jurisdiction.Although the Answer with Motion to Dismiss filed by the respondent cooperative
challenged the jurisdiction of the petitioner SSC on the alleged lack of employer-employee relationship
between itself and its owners-members, the same is not enough to deprive the petitioner SSC of its

jurisdiction over the petition-complaint filed before it.Thus, the petitioner SSC cannot be faulted for initially
assuming jurisdiction over the petition-complaint of the petitioner SSS.
Nonetheless, since the existence of an employer-employee relationship between the respondent
cooperative and its owners-members was put in issue and considering that the compulsory coverage of
the SSS Law is predicated on the existence of such relationship, it behooves the petitioner SSC to
determine if there is really an employer-employee relationship that exists between the respondent
cooperative and its owners-members.
The question on the existence of an employer-employee relationship is not within the exclusive
jurisdiction of the National Labor Relations Commission (NLRC).Article 217 of the Labor Code
enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:
ART. 217.JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x
6.Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for reinstatement.
Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily
include issues on the coverage thereof, because claims are undeniably rooted in the coverage by
the system.Hence, the question on the existence of an employer-employee relationship for the
purpose of determining the coverage of the Social Security System is explicitly excluded
from the jurisdiction of the NLRC and falls within the jurisdiction of the SSC which is primarily
charged with the duty of settling disputes arising under the Social Security Law of 1997.
On the basis thereof, considering that the petition-complaint of the petitioner SSS involved the issue of
compulsory coverage of the owners-members of the respondent cooperative, this Court agrees with the
petitioner SSC when it declared in its Order dated 17 February 2004 that as an incident to the issue of
compulsory coverage, it may inquire into the presence or absence of an employer-employee relationship
without need of waiting for a prior pronouncement or submitting the issue to the NLRC for prior
determination.Since both the petitioner SSC and the NLRC are independent bodies and their jurisdiction
are well-defined by the separate statutes creating them, petitioner SSC has the authority to inquire into
the relationship existing between the worker and the person or entity to whom he renders service to
determine if the employment, indeed, is one that is excepted by the Social Security Law of 1997 from
compulsory coverage.
In determining the existence of an employer-employee relationship, the following elements are
considered: (1) the selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the workers conduct, with the latter
assuming primacy in the overall consideration. The most important element is the employers control
of the employees conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish. The power of control refers to the existence of the power and not
necessarily to the actual exercise thereof.It is not essential for the employer to actually supervise the

performance of duties of the employee; it is enough that the employer has the right to wield that power.
All the aforesaid elements are present in this case.
First.It is expressly provided in the Service Contracts that it is the respondent cooperative which has the
exclusive discretion in the selection and engagement of the owners-members as well as its team
leaders who will be assigned at Stanfilco. Second.Wages are defined as remuneration or earnings,
however designated, capable of being expressed in terms of money, whether fixed or ascertained, on
a time, task, piece or commission basis, or other method of calculating the same, which is payable by
an employer to an employee under a written or unwritten contract of employment for work done
or to be done, or for service rendered or to be rendered. In this case, the weekly stipends or the socalled shares in the service surplus given by the respondent cooperative to its owners-members were in
reality wages, as the same were equivalent to an amount not lower than that prescribed by existing labor
laws, rules and regulations, including the wage order applicable to the area and industry; or the same
shall not be lower than the prevailing rates of wages. It cannot be doubted then that those stipends or
shares in the service surplus are indeed wages, because these are given to the owners-members as
compensation in rendering services to respondent cooperatives client, Stanfilco.Third.It is also stated in
the above-mentioned Service Contracts that it is the respondent cooperative which has the power to
investigate, discipline and remove the owners-members and its team leaders who were rendering
services at Stanfilco. Fourth.As earlier opined, of the four elements of the employer-employee
relationship, the control test is the most important.In the case at bar, it is the respondent cooperative
which has the sole control over the manner and means of performing the services under the
Service Contracts with Stanfilco as well as the means and methods of work. Also, the respondent
cooperative is solely and entirely responsible for its owners-members, team leaders and other
representatives at Stanfilco. All these clearly prove that, indeed, there is an employer-employee
relationship between the respondent cooperative and its owners-members.
It is true that the Service Contracts executed between the respondent cooperative and Stanfilco
expressly provide that there shall be no employer-employee relationship between the respondent
cooperative and its owners-members. This Court, however, cannot give the said provision force and
effect.
As previously pointed out by this Court, an employee-employer relationship actually exists between the
respondent cooperative and its owners-members.The four elements in the four-fold test for the existence
of an employment relationship have been complied with.The respondent cooperative must not be allowed
to deny its employment relationship with its owners-members by invoking the questionable Service
Contracts provision, when in actuality, it does exist.The existence of an employer-employee
relationship cannot be negated by expressly repudiating it in a contract, when the terms and
surrounding circumstances show otherwise.The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.
It is settled that the contracting parties may establish such stipulations, clauses, terms and conditions as
they want, and their agreement would have the force of law between them.However, the agreed terms
and conditions must not be contrary to law, morals, customs, public policy or public order. The
Service Contract provision in question must be struck down for being contrary to law and public policy
since it is apparently being used by the respondent cooperative merely to circumvent the compulsory
coverage of its employees, who are also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City, Inc.
v. Ferrer-Calleja wherein it held that:
A cooperative, therefore, is by its nature different from an ordinary business concern, being run either by
persons, partnerships, or corporations. Its owners and/or members are the ones who run and operate
the business while the others are its employees x x x.
An employee therefore of such a cooperative who is a member and co-owner thereof cannot
invoke the right to collective bargaining for certainly an owner cannot bargain with himself or his
co-owners. In the opinion of August 14, 1981 of the Solicitor General he correctly opined that employees
of cooperatives who are themselves members of the cooperative have no right to form or join labor
organizations for purposes of collective bargaining for being themselves co-owners of the cooperative.
However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing
laws of the country.
The situation in the aforesaid case is very much different from the present case.The declaration
made by the Court in the aforesaid case was made in the context of whether an employee who is
also an owner-member of a cooperative can exercise the right to bargain collectively with the
employer who is the cooperative wherein he is an owner-member. Obviously, an owner-member
cannot bargain collectively with the cooperative of which he is also the owner because an owner
cannot bargain with himself.In the instant case, there is no issue regarding an owner-members
right to bargain collectively with the cooperative.The question involved here is whether an
employer-employee relationship can exist between the cooperative and an owner-member.In fact,
a closer look at Cooperative Rural Bank of Davao City, Inc. will show that it actually recognized
that an owner-member of a cooperative can be its own employee.
It bears stressing, too, that a cooperative acquires juridical personality upon its registration with
the Cooperative Development Authority. It has its Board of Directors, which directs and supervises
its business; meaning, its Board of Directors is the one in charge in the conduct and management
of its affairs. With that, a cooperative can be likened to a corporation with a personality separate
and distinct from its owners-members.Consequently, an owner-member of a cooperative can be
an employee of the latter and an employer-employee relationship can exist between them.
In the present case, it is not disputed that the respondent cooperative had registered itself with
the Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0-6232460. In its by-laws, its Board of Directors directs, controls, and supervises the business and
manages the property of the respondent cooperative.Clearly then, the management of the affairs
of the respondent cooperative is vested in its Board of Directors and not in its owners-members
as a whole.Therefore, it is completely logical that the respondent cooperative, as a juridical person
represented by its Board of Directors, can enter into an employment with its owners-members.
In sum, having declared that there is an employer-employee relationship between the respondent
cooperative and its owners-member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS

G.R. No. 77951 September 26, 1988


COOPERATIVE RURAL BANK OF DAVAO CITY, INC., petitioner,
vs.
PURA FERRER-CALLEJA, DIRECTOR, BUREAU OF LABOR RELATIONS, MOLE, MANILA;
FELIZARDO T. SERAPIO, MED-ARBITER DESIGNATE, REGIONAL OFFICE NO. XI, MOLE,
DAVAO CITY; and FEDERATION OF FREE WORKERS, respondents.
Herbert P. Artes for petitioner.
The Solicitor General for Public respondent.

GANCAYCO, J.:
This is a Petition for certiorari under Rule 65 of the Rules of Court where the issue is whether or not the
employees of a cooperative can organize themselves for purposes of collective bargaining.
The record of the case discloses that the herein petitioner Cooperative Rural Bank of Davao City, Inc. is
a cooperative banking corporation operating in Davao City. It is owned in part by the Government and
its employees are members and co-owners of the same. The petitioner has around 16 rank-and-file
employees. As of August, 1986, there was no existing collective bargaining agreement between the
said employees and the establishment. On the other hand, the herein private respondent Federation of
Free Workers is a labor organization registered with the Department of Labor and Employment. It is
interested in representing the said employees for purposes of collective bargaining.
On August 27, 1986, the private respondent filed with the Davao City Regional Office of the then
Ministry of Labor and Employment a verified Petition for certification election among the rank-and-file
employees of the petitioner. 1The same was docketed as Case No. R-325 ROXI MED-UR-73-86. On
September 18, 1986, the herein public respondent issued an Order granting the Petition for certification
election.
On October 3, 1986, the petitioner filed an Appeal Memorandum and sought a reversal of the Order of
the Med-Arbiter. 2 The petitioner argues therein that, among others, a cooperative is not covered by the
Rules governing certification elections inasmuch as it is not an institution operating for profit. The
petitioner also adds that two of the alleged rank-and-file employees seeking the certification election
are managerial employees disqualified from joining concerted labor activities. In sum, the petitioner
insists that its employees are disqualified from forming labor organizations for purposes of collective
bargaining.
On October 8, 1986, the private respondent filed a "Motion to Dismiss the Appeal." On October 15,
1986, the petitioner filed its opposition to the said Motion.
On February 11, 1987, the herein public respondent Bureau of Labor Relations Director Pura FerrerCalleja issued a Resolution affirming the Order of the Med-Arbiter and dismissing the Appeal. 3 The
pertinent portions of the said Resolution are as follows
It is beyond doubt that respondent-appellant, Cooperative Rural Bank of Davao City falls within the
purview of Article 212, paragraph C of the Labor Code, acting as such in the interest of an employer. To

argue otherwise would amount to closing one's eyes to the realities of today's cooperative banking
institutions. ....
Moreover, basic is the right of every worker in any establishment whether operated for profit or not to
organize and engage in concerted activity, mutually beneficial to their interest. Such right is sacredly
enshrined and protected in our fundamental law, granting every worker the right to organize into a
collective group and engage in concerted activities for purposes of promoting their well being, subject
only to such limitations as may be provided for by law.
xxx xxx xxx
As this Office has consistently ruled and applied in various cases, being a member of a cooperative
organization does not preclude one from forming or joining a labor union provided that such person or
persons are not among those disqualified by law. Nowhere in the records can we find any piece of
evidence showing that the signatories in the petition are among those disqualified to form or join a
union.
Finally, we cannot give credence to (the) employer's allegation that two of the signatories thereof, are
managerial employees, since no evidence showing such fact can be found from the records.
xxx xxx xxx
In a Motion dated March 2, 1987, the petitioner asked for a reconsideration of the said
Resolution. 4 The petitioner reiterated therein its view that its employees are disqualified from forming
the labor organization so contemplated. The petitioner also called attention to an Opinion rendered by
then Solicitor General and Minister of Justice Estelito P. Mendoza dated August 14, 1981. 5 The
Opinion states that employees of an electric cooperative who are themselves members/co-owners of
the same cannot form or join labor organizations for purposes of collective bargaining. The Opinion also
states that the duty to bargain exists only between an employer and his/its employees, and that an
employer has no duty to bargain with his co-owners of a corporation who are also its employees. The
petitioner submits that the said Opinion calls for application in the present controversy.
On March 26, 1987, director Calleja issued a Resolution denying the reconsideration sought by the
petitioner. 6Thus, the certification election was scheduled in the morning of April 23, 1987.
Finding the action taken by the Bureau unsatisfactory, the petitioner brought the case directly to this
Court on April 9, 1987 by way of the instant Petition for certiorari. The petitioner maintains that the
public respondents both acted without jurisdiction or in excess thereof, or with grave abuse of discretion
amounting to lack of jurisdiction, in allowing the certification election sought by the private respondent
despite the arguments of the petitioner in opposition thereto. The petitioner reiterates its argument that
employees of cooperatives who are members and co-owners of the same cannot form and join labor
organizations for purposes of collective bargaining.
On April 15, 1987, this Court issued a temporary restraining order enjoining the Bureau of Labor
Relations from proceeding with the certification election scheduled on April 23, 1987. 7 The certification
election nonetheless pushed through as scheduled for the alleged reason that the temporary restraining
order was not seasonably transmitted to Davao City. 8
This court also required the respondents to file their Comment on the Petition. The respondents
complied as instructed. The Office of the Solicitor General represented the public respondents.

The Solicitor General intimated to this Court that the instant Petition has been rendered moot and
academic inasmuch as the certification election sought to be enjoined had already been conducted.
The Solicitor General added that the public respondents did not commit any jurisdictional error. 10
In due time, the parties submitted other pleadings. On January 6, 1988, the case was deemed
submitted for decision.
After a careful examination of the entire record of the case, We find the instant Petition meritorious.
Contrary to the view espoused by the Solicitor General, this case cannot be considered moot and
academic simply because the certification election sought to be enjoined went on as scheduled. The
instant Petition is one for certiorari as a special civil action. Errors of jurisdiction on the part of the public
respondents are alleged in the Petition itself. If the public respondents had indeed committed
jurisdictional errors, the action taken by both the Med-Arbiter and the Bureau Director will be deemed
null and void ab initio. 11 And if this were so, the certification election would, necessarily, have no legal
justification. The arguments raised in the instant Petition strike at the very heart of the validity of the
certification election itself.
We come now to the main aspect of the case.
Article 243 of the Labor Code 12 enumerates who are eligible to form, join, or assist labor organizations
for purposes of collective bargaining, to wit
ART. 243. Coverage and employees' right to self-organization. All persons employed in commercial,
industrial and agricultural enterprises and in religious, charitable, medical or educational institutions
whether operating for profit or not, shall have the right to self-organization and to form, join, or assist
labor organizations of their own choosing for purposes of collective bargaining. ....
The recognized exception to this enumeration is found in Article 245 of the same code, which provides
for the ineligibility of managerial employees to join any labor reorganization, vizART. 245. Ineligibility of managerial employees to join any labor organization. Managerial employees
are not eligible to join, assist or form any labor organization.
From the foregoing provisions of law it would appear at first blush that all the rank and file employees of
a cooperative who are not managerial employees are eligible to form, join or assist any labor
organization of their own choosing for the purpose of collective bargaining.
However, under Section 2 of P.D. No. 175, a cooperative is defined to mean "organizations composed
primarily of small producers and of consumers who voluntarily join together to form business
enterprises which they themselves own, control, and patronize." Its creation and growth were declared
as a policy of the State as a means of increasing the income and purchasing power of the low-income
sector of the population in order to attain a more equitable distribution of income and wealth . 13 The
principles governing it are:
a) Open membership"Should be voluntary and available without artificial restriction, or any social,
political, racial or religious discrimination, to all persons who can make use of its services and are
willing to accept responsibilities of membership;"
b) Democratic control."Irrespective of the number of shares owned, each member can only cast one
vote in deciding upon the affairs of the cooperative;"

c) Limited interests to capital. "Share capital shall earn only limited interest, the maximum rate of
interest to be established by the Department of Local Government and Community Development from
time to time;" and
d) Patronage refund "Net income after the interest on capital has been paid shall be redistributed
among the members in proposition to their patronage." 14
While cooperatives may exercise the same rights and privileges given to persons, partnership and
corporations provided under existing laws, operate business enterprises of all kinds, establish rural
banks, enjoy all the privileges and incentives granted by the NACIDA Act and other government
agencies to business organizations under existing laws, to expropriate idle urban or rural lands for its
purposes, to own and dispose of properties, enter into contracts, to sue and be sued and perform other
acts necessary to pursue its objectives, 15 such cooperatives enjoy such privileges as:
a) Exemption from income tax and sales taxes;
b) Preferential right to supply rice, corn and other grains, and other commodities produced by them to
State agencies administering price stabilization program; and
c) In appropriate cases, exemption from application of minimum wage law upon recommendation of the
Bureau of Cooperative Development subject to the approval of the Secretary of Labor. 16
A cooperative development loan fund has been created for the development of the cooperative
movement. 17
It may be, further stated that the Department of Local Govemment and Community Development
through the Bureau of Cooperative Development is vested with full authority to promulgate rules and
regulations to cover the promotion, organization, registration, regulation and supervision of all types of
cooperatives. 18 Electric cooperatives, however, are under the regulation and supervision of the
National Electrification Ad. Administration, 19 while it is the Monetary Board of the Central Bank that has
exclusive responsibility and authority over the banking functions and operations of cooperative banks
. 20
A cooperative, therefore, is by its nature different from an ordinary business concern, being run either
by persons, partnerships, or corporations. Its owners and/or members are the ones who run and
operate the business while the others are its employees. As above stated, irrespective of the number of
shares owned by each member they are entitled to cast one vote each in deciding upon the affairs of
the cooperative. Their share capital earn limited interests. They enjoy special privileges as
exemption from income tax and sales taxes, preferential right to supply their products to State agencies
and even exemption from the minimum wages laws.
An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke the
right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners. In the
opinion of August 14, 1981 of the Solicitor General he correctly opined that employees of cooperatives
who are themselves members of the cooperative have no right to form or join labor organizations for
purposes of collective bargaining for being themselves co-owners of the cooperative. 21
However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing laws of
the country. 22

The questioned ruling therefore of public respondent Pura Ferrer-Calleja must be upheld insofar as it
refers to the employees of petitioner who are not members or co-owners of petitioner. It cannot extend
to the other employees who are at the same time its members or co-owners.
The Court upholds the findings of said public respondent that no persuasive evidence has been
presented to show that two of the signatories in the petition for certification election are managerial
employees who under the law are disqualified from pursuing union activities.
WHEREFORE, the herein petition is hereby GRANTED and the resolution of public respondent Pura
Ferrer-Calleja, Director, Bureau of Labor Relations, of February 11, 1987 is hereby MODIFIED to the
effect that only the rank and file employees of petitioner who are not its members or co-owners are
entitled to self-organization, collective bargaining, and negotiations, while the other employees who are
members or co-owners thereof can not enjoy such right.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue


G.R. No. 182722, January 22, 2010

Facts:

Dumaguete Cathedral Credit Cooperative (the Cooperative) was assessed by the Commissioner of
Internal Revenue (CIR) on deficiency withholding taxes for taxable years 1999 and 2000 which it
protested on July 23, 2002. Thereafter, on October 16, 2002, the Cooperative received two (2) other
Pre-Assessment Notices for deficiency withholding taxes also for taxable years 1999 and 2000.

The deficiency withholding taxes cover the payments of the honorarium of the Board of Directors,
security and janitorial services, legal and professional fees, and interest on savings and time deposits
of its members. In another letter dated November 8, 2002, the Cooperative informed the CIR, that it
would pay the withholding taxes due on the honorarium and per diems of the Board of Directors,
security and janitorial services, commissions and legal and professional fees for the year 2000
excluding penalties and interest, and that it would avail of the Voluntary Assessment and Abatement
Program (VAAP) of the BIR under Revenue Regulations No. 17-2002.

On November 29, 2002, the Cooperative availed of the VAAP and paid the amounts corresponding to
the withholding taxes on the payments for the compensation, honorarium of the Board of Directors,
security and janitorial services, and legal and professional services, for the years 1999 and 2000. On
April 24, 2003, the Cooperative received from the BIR Regional Director, Sonia L. Flores, Letters of
Demand Nos. 00027-2003 and 00026-2003, with attached Transcripts of Assessment and Audit
Results/Assessment Notices, ordering it to pay the deficiency withholding taxes, inclusive of penalties,
for the years 1999 and 2000 in the amounts of P1,489,065.30 and P1,462,644.90, respectively.

On May 9, 2003, the Cooperative protested the Letters of Demand and Assessment Notices with the
CIR. However, the latter failed to act on the protest within the prescribed 180-day period. Hence, on
December 3, 2003, the Cooperative filed a Petition for Review before the CTA.

CTA first Division: - partially granted the petition and cancelled the deficiency assessment against the
Cooperative for deficiency withholding taxes on the honorarium and per diems of the Cooperatives
Board of Directors, security and janitorial services, commissions and legal and professional fees in view
of its VAAP application.

- ordered the Cooperative to pay the amounts representing deficiency withholding taxes on interests
from savings and time deposits of its members for the taxable years 1999 and 2000 plus the 20%
delinquency interest from May 26, 2003 until the amount of deficiency withholding taxes are fully paid
pursuant to Section 249 (C) of the Tax Code.
Cooperative filed an appeal before the CTA En Banc.
CTA en banc denied. So it elevated the Case before the SC.

Issue: Is the Cooperative liable to pay the deficiency withholding taxes on interest from savings and
time deposits of its members, as well as the delinquency interest of 20% per annum.

Held: The Supreme Court held that the Cooperative is not liable.
In BIR Ruling No. 551-888, the BIR stated that cooperatives are not required to withhold taxes on
interest from savings and time deposits of their members which ruling was reiterated in BIR Ruling [DA591-2006] dated October 5, 2006. The Court found that both BIR Ruling No. 551-888 and BIR Ruling
[DA-591-2006] are in perfect harmony with the Constitution and the laws they seek to implement. Also,
given that the Cooperative is duly registered with the Cooperative Development Authority (CDA),
Section 24(B)(1) of the NIRC must be read together with RA 6938, as amended by RA 9520.

Under Article 2 of RA 6938, as amended by RA 9520, it is a declared policy of the State to foster the
creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing
people power towards the attainment of economic development and social justice. Thus, to encourage
the formation of cooperatives and to create an atmosphere conducive to their growth and development,
the State extends all forms of assistance to them, one of which is providing cooperatives a preferential
tax treatment. The legislative intent to give cooperatives a preferential tax treatment is apparent in
Articles 61 and 62 of RA 6938, which read:

ART. 61. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which do not
transact any business with non-members or the general public shall not be subject to any government
taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling
under this article shall be governed by the succeeding section.
ART. 62. Tax and Other Exemptions. Cooperatives transacting business with both members and
nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the
provision of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall
enjoy the following tax exemptions; x x x.

This exemption extends to members of cooperatives. It must be emphasized that cooperatives exist for
the benefit of their members. In fact, the primary objective of every cooperative is to provide goods and
services to its members to enable them to attain increased income, savings, investments, and
productivity. Therefore, limiting the application of the tax exemption to cooperatives would go against
the very purpose of a credit cooperative. Extending the exemption to members of cooperatives, on the
other hand, would be consistent with the intent of the legislature.
Thus, although the tax exemption only mentions cooperatives, this should be construed to include the
members, pursuant to Article 126 of RA 6938, which provides:
ART. 126. Interpretation and Construction. In case of doubt as to the meaning of any provision of this
Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the
cooperatives and their members.

The Supreme Court likewise noted that the tax exemption in RA 6938 was retained in RA 9520. The
only difference is that Article 61 of RA 9520 (formerly Section 62 of RA 6938) now expressly states that
transactions of members with the cooperatives are not subject to any taxes and fees. ART. 61. Tax and
Other Exemptions. Cooperatives transacting business with both members and non-members shall not
be subjected to tax on their transactions with members.
In relation to this, the transactions of members with the cooperative shall not be subject to any taxes
and fees, including but not limited to final taxes on members deposits and documentary tax.
Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with
nonmembers shall enjoy the following tax exemptions: (Underscoring Supplied)
This amendment in Article 61 of RA 9520, specifically providing that members of cooperatives are not
subject to final taxes on their deposits, affirms the interpretation of the BIR that Section 24(B)(1) of the
NIRC does not apply to cooperatives and confirms that such ruling carries out the legislative intent.

Under the principle of legislative approval of administrative interpretation by reenactment, the


reenactment of a statute substantially unchanged is persuasive indication of the adoption by Congress
of a prior executive construction. Moreover, no less than the Constitution guarantees the protection of
cooperatives. Section 15, Article XII of the Constitution considers cooperatives as instruments for social
justice and economic development. At the same time, Section 10 of Article II of the Constitution
declares that it is a policy of the State to promote social justice in all phases of national development. In
relation thereto, Section 2 of Article XIII of the Constitution states that the promotion of social justice
shall include the commitment to create economic opportunities based on freedom of initiative and selfreliance. Bearing in mind the foregoing provisions, the Court found that an interpretation exempting the
members of cooperatives from the imposition of the final tax under Section 24(B)(1) of the NIRC is
more in keeping with the letter and spirit of the Constitution.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 77231 May 31, 1989
SAN JOSE CITY ELECTRIC SERVICE COOPERATIVE, INC. (SAJELCO), petitioner,
vs.
MINISTRY OF LABOR AND EMPLOYMENT and MAGKAISA-ADLO, respondents.
MEDIALDEA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court. Petitioner San Jose City Electric
Service Cooperative, Inc. (SAJELCO, for brevity) seeks the reversal of the Order (pp. 38-40, Rollo) of
Pura Ferrer-Calleja, Director of Bureau of Labor Relations in BLR Case No. A-10-259-86 which affirmed
the Order of Med-Arbiter Antonio R. Cortez to conduct a certification election among the rank-and-file
employees of SAJELCO.
The antecedent facts of the instant case are as follows:
On July 29, 1986, private respondent Manggagawang Nagkakaisa ng SAJELCO-Association of
Democratic Labor Organization (MAGKAISA-ADLO) filed a petition (pp. 16-18, Rollo) for direct
certification election with the Regional Office No. 111 of the Department of Labor and Employment in San
Fernando, Pampanga. The petition alleged that MAGKAISA-ADLO is a legitimate labor organization duly
registered with the Ministry of Labor and Employment; that there are more or less fifty-four (54) rank and
file employees in SAJELCO; that almost 62% of the employees sought to be represented have supported
the filing of the petition; that there has been no valid certification election held in SAJELCO during the
twelve (12) month period prior to the filing of the petition and that there is no other union in the bargaining
unit.
In its answer (pp. 19-21, Rollo), SAJELCO opposed the petition for direct certification election contending,
inter alia, that the employees who sought to be represented by private respondent are membersconsumers of the Cooperative itself and at the same time composed the General Assembly which,
pursuant to the By-laws is also the final arbiter of any dispute arising in the Cooperative.
Thus:
5. That some, if not most, of the employees who sought to be represented by the petitioner, are memberconsumers, and as such are members of the General or Special Assembly which is the final arbiter on
any dispute which a member and/or the Board, or the Cooperative may have, and that such "some"of

said alleged supporters, in their capacity as member-consumers, enjoy two personalities in that as
employees and/or members of the General Assembly, and therefore cannot fairly and prudently represent
such opposing personalities that merge into one juridical or natural person, and these special and unique
status or personalities of the supposed supporters cannot qualify to be represented by the petitioner,
without doing injustice, in equity and unfair status or advantage to those member-consumers who have
not that destiny or status of becoming employees;
6 No valid and lawful representation can be obtained by petitioner in behalf of the supposed supporters,
who are also member-consumer, that are bound by the Article of Incorporation, By-laws of the respondent
Cooperative and pertinent Decrees and laws, to support and defend the basic policies of the Government
on Electric Cooperatives;
7. There is no possible legal way by which to dismantle the personalities of some of the supporters of the
petitioner, as employees, from their status as consumer-members, who are, under the By-laws, part and
parcels of the General or Special Assembly that finally decides any dispute, and no reasonable or valid
scale of justice could be invoked to divide a person who, in conscience, is also the other fellow against
whom a remedy is sought for in allowing this to happen is tantamount to slaughtering a man to his own
ends;
On September 5, 1986, the Med-Arbiter who was assigned to the case issued an Order (pp. 24-26, Rollo)
granting the petition for direct certification election on the basis of the pleadings filed. The Order said that
while some of the members of petitioner union are members of the cooperative, it cannot be denied that
they are also employees within the contemplation of the Labor Code and are therefore entitled to enjoy
all the benefits of employees, including the right to self-organization (pp. 25, Rollo). This Order was
appealed by SAJELCO to the Bureau of Labor Relations.
In its appeal, (pp. 27-36, Rollo) SAJELCO reiterated its position that:
. . . upon the principle that in electric cooperative as in the case of respondent, there is a merger of
the consumer-members that composed of the assembly and that of the rank-and-file members of the
petitioners-into one person or juridical status thus rendering the proposed collective bargaining agent
ineffective and/or uncalled for considering that a grievance machinery for employees and/or memberconsumers of the cooperative-has been provided for by the By-laws as a built-in over-all arbiter involving
disputes affecting said cooperative;
Respondent Director of the Bureau of Labor Relations dismissed the appeal and sustained the ruling of
the Med-Arbiter in an order dated January 5, 1987.
On February 19, 1987, SAJELCO filed the instant petition for certiorari praying that the order of
respondent Director be set aside and another one rendered denying the holding or conduct of a
certification election among the rank and file employees of SAJELCO.
In a letter dated June 20, 1987, Atty. Ricardo Soto, Jr., counsel for private respondent union, manifested
that a direct certification election was conducted in SAJELCO, there being no restraining order from this
Court enjoining the holding thereof Likewise, Atty. Soto was of the opinion that in view of the direct
certification election conducted, the petition brought before this Court by SAJELCO has become moot
and academic (p. 48, Rollo). Attached to his letter is a copy of the minutes of the certification election

held on April 13, 1987 showing that of forty three (43) employees who voted, thirty (30) voted for
respondent union and thirteen (13) voted for "no union."
In the resolution of this court (First Division) dated September 29, 1987, respondents were required to
comment on the petition. The Solicitor General filed its comment dated October 30, 1987 wherein it took
a stand contrary to that of respondent Director. To support its stand, the Solicitor General argued firstly,
that the union members who seek to be represented by the union are the very members of the
cooperative, thereby resulting in a fusion of two personalities. Thus, it will be inconsistent for the union
members to bargain with themselves. Secondly, he said that article 243 of the Labor Code; requires that
before one can form, join or assist a labor union, he must first be employed and to be an employee one
must be under hire and must have no involvement in the ownership of the firm. A labor union is formed
for purposes of collective bargaining. The duty to bargain exists only between employer and employees
and not between an employer and his co-owners. Thirdly, he also said that under the National
Electrification Decree (P.D. No. 269, August 6, 1973) members of an electric cooperative such as
petitioner, besides contributing financially to its establishments and maintenance, participate in its
management. In the latter aspect, they possess the powers and prerogatives of managerial employees
who are not eligible to join, assist or form any labor organization (pp. 4-6 of Comment; pp 43-45, Rollo).
On November 25, 1987, We required Atty. Soto, Jr. to comment on the comment of the Solicitor General
(p. 47, Rollo). However, the notices sent to him were returned and stamped "moved to an unknown
address." But respondent Director of the Bureau of Labor Relations filed a comment on the aforesaid
comment of the Solicitor General reiterating his stand that members of private respondent union fall under
the general provision of Article 244 of the Code on who are qualified to form, join or assist in the formation
of unions as they are neither managerial employees nor persons belonging to subversive organizations.
Thus, on May 25, 1988, we gave due course to the petition (p. 79, Rollo).
The only issue presented for resolution in this petition is whether or not the employees-members of an
electric cooperative can organize themselves for purposes of collective bargaining.
This Court had the occasion to rule on this issue in the consolidated cases of Batangas I-Electric
Cooperative Labor Union vs. Romeo Young, et al., G.R. No. 62386, Bulacan II- Electric Cooperative,
Inc., vs. Hon. Eliseo A. Penaflor, et al., G.R. No. 70880 and Albay Electric Cooperative vs. Crescencio
B. Trajano et. al., G.R. No. 74560 (November 9, 1988), citing the case of Cooperative Rural Bank of
Davao City, Inc. vs. Pura Ferrer-Calleja, G.R. No. 77951, September 26,1988, where it was held that:
A cooperative, therefore, is by its nature different from an ordinary business concern being run either, by
persons, partnerships or corporations. Its owners and/or members are the ones who run and operate the
business while the others are its employees. As above stated, irrespective of the name of shares owned
by its members they are entitled to cast one vote each in deciding upon the affair of the cooperative.
Their share capital earn limited interests, They enjoy special privileges as exemption from income tax
and sales taxes, preferential right to supply their products to State agencies and even exemption from
minimum wage laws.
An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke the
right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners. In the
opinion of August 14, 1981 of the Solicitor General, he corectly opined that employees of cooperatives

who are themselves members of the cooperative have no right to form or join labor organizations for
purposes of collective bargaining for being themselves co-owners of the cooperative.
However, in so far as it involves cooperatives with employees who are not members or co-owners thereof,
certainly such employees are entitled to exercise the rights of all workers to organization, collective
bargaining, negotiations and others as are enshrined in the Constitution and existing laws of the country.
In this petition, San Jose City Electric Service Cooperative, Inc. (SAJELCO) claims that its employees
are also members of the cooperative. It cited Section 17(18) of its By-laws which declares that:
The Board shall also create positions for subordinate employees and fix their duties and remunerations.
Only member-consumers or members of their immediate family shall be employed by the cooperative
(Emphasis supplied).
The above-cited provision, however, mentions two types of employees, namely: the members-consumers
and the members of their immediate families. As regards employees of SAJELCO who are membersconsumers, the rule is settled that they are not qualified to form, join or assist labor organizations for
purposes of collective bargaining. The reason for withholding from employees of a cooperative who are
members-co-owners the right to collective bargaining is clear: an owner cannot bargain with himself.
However, employees who are not members-consumers may form, join or assist labor organizations for
purposes of collective bargaining notwithstanding the fact that employees of SAJELCO who are not
members-consumers were employed ONLY because they are members of the immediate family of
members-consumers. The fact remains that they are not themselves members-consumers, and as such,
they are entitled to exercise the rights of all workers to organization, collective bargaining, negotiations
and others as are enshrined in Section 8, Article III and Section 3, Article XIII of the 1987 Constitution,
Labor Code of the Philippines and other related laws (Cooperative Rural Bank of Davao City, Inc., supra,
p. 10).
ACCORDINGLY, the petition is GRANTED. The assailed Order of respondent Pura Ferrer-Calleja,
Director of the Bureau of Labor Relations is hereby MODIFIED to the effect that only the rank-and-file
employees of petitioner who are not its members-consumers are entitled to self-organization, collective
bargaining, and negotiations, while other employees who are members-consumers thereof cannot enjoy
such right. The direct certification election conducted on April 13, 1987 is hereby set aside. The Regional
Office III of the Department of Labor and Employment in San Fernando, Pampanga is hereby directed:
(a) to determine the number of rank and file employees of SAJELCO who are not themselves membersconsumers; (b) to resolve whether or not there is compliance with the requirements set forth in Article
257 of the Labor Code; and (c) in the affirmative, to immediately conduct a direct certification election
among the rank and file employees of SAJELCO who are not members-consumers.

SO ORDERED.

Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.