You are on page 1of 3

TodayisThursday,March02,2017

CustomSearch

RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L14606April28,1960

LAGUNATRANSPORTATIONCO.,INC.,petitionerappellant,
vs.
SOCIALSECURITYSYSTEM,respondentappellee.

Yatco&Yatcoforappellant.
SolicitorGeneralEdilbertoBarot,SolicitorCamiloQuiasonandCrispinBaizasforappellee.

BARRERA,J.:

OnJanuary24,1958,petitionerLagunaTransportationCo.,Inc.filedwiththeCourtofFirstInstanceofLaguna
petition praying that an order be issued by the court declaring that it is not bound to register as a member of
respondentSocialSecuritySystemand,therefore,notobligedtopaytothelatterthecontributionsrequiredunder
theSocialSecurityAct.1Tothispetition,respondentfileditsansweronFebruary11,1958prayingforitsdismissal
due to petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is covered by
saidAct,sincethelatter'sbusinesshasbeeninoperationforatleast2yearspriortoSeptember1,1957.

On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that petitioner failed to
exhaust administrative remedies. When the case was called for preliminary hearing, it was postponed by
agreementoftheparties.Subsequently,itwassetfortrial.Onthedateofthetrial,thepartiesagreedtopresent,
inlieuofanyotherevidence,astipulationoffacts,whichtheydidonMay27,1958,asfollows:

1.ThatpetitionerisadomesticcorporationdulyorganizedandexistingunderthelawsofthePhilippines,
withprincipalplaceofbusinessatBian,Laguna

2. That respondent is an agency created under Republic Act No. 1161, as amended by Republic Act No.
1792,withtheprincipalplaceofbusinessatthenewGSISBldg.,cornerArrocerosandConcepcionStreets,
Manila,whereitmaybeservedwithsummons

3.ThatrespondenthasservednoticeuponthepetitionerrequiringittoregisterasmemberoftheSystem
andtoremitthepremiumsduefromalltheemployeesofthepetitionerandthecontributionofthelatterto
theSystembeginningthemonthofSeptember,1957

4.Thatsometimein1949,theBianTransportationCo.,acorporationdulyregisteredwiththeSecurities
andExchangeCommission,soldpartofthelinesandequipmentitoperatestoGonzaloMercado,Artemio
Mercado,FlorentinoMataandDominadorVeraCruz

5. That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the Bian
Transportation Company, in addition to new lines which it was able to secure from the Public Service
Commission

6. That the original partners forming the Laguna Transportation Company, with the addition of two new
members, organized a corporation known as the Laguna Transportation Company, Inc., which was
registeredwiththeSecuritiesandExchangeCommissiononJune20,1956,andwhichcorporationisthe
plaintiffnowinthiscase

7.ThattheincorporatorsoftheLagunaTransportationCompany,Inc.,andtheircorrespondingsharesare
asfollows:

Name No.of Amount Amount


Shares Subscribed Paid
DominadorCruz 333shares P33,300.00 P9,160.81

MauraMendoza 333shares 33,300.00 9,160.81

GonzaloMercado 66shares 6,600.00 1,822.49

ArtemioMercado 94shares 9,400.00 2,565.90

FlorentinoMata 110shares 11,000.00 3,021.54

SabinaBorja 64shares 6,400.00


1,750.00

1,000shares P100,000.00 P27,481.55

8.Thatthecorporationcontinuedthesametransportationbusinessoftheunregisteredpartnership

9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a supplemental
InformationSheet...

10.ThatpriortoNovember11,1957,plaintiffrequestedforexemptionfromcoveragebytheSystemonthe
ground that it started operation only on June 20, 1956, when it was registered with the Securities and
ExchangeCommissionbutonNovember11,1957,theSocialSecuritySystemnotifiedplaintiffthatitwas
covered

11.OnNovember14,1957,plaintiffthroughcounselsentalettertotheSocialSecuritySystemcontesting
theclaimoftheSystemthatplaintiffwascovered,...

12. On November 27, 1957, Carlos Sanchez, Manager of the Production Department of the respondent
SystemforandinbehalfoftheActingAdministrator,informedplaintiffthatplaintiff'sbusinesshasbeenin
actualoperationforatleasttwoyears,...

On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a decision the
dispositivepartofwhichreads:

Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged in
businessascommoncarrierwhichhadbeeninoperationforatleasttwoyearspriortotheenactmentof
Republic Act No. 1161, as amended by Republic Act 1792 and by virtue thereof, it was subject to
compulsorycoverageundersaidlaw....

Fromthisdecision,petitionerappealeddirectlytous,raisingpurelyquestionsoflaw.

Petitioner claims that the lower court erred in holding that it is an employer engaged in business as a common
carrier which had been in operation for at least 2 years prior to the enactment of the Social Security Act and,
therefore,subjecttocompulsorycoveragethereunder.

Section9oftheSocialSecurityAct,inpart,provides:

SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory upon all employees
between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the
serviceofanemployerwhoisamemberoftheSystem.Provided,ThattheCommissionmaynotcompel
anyemployertobecomeamemberoftheSystemunlessheshallhavebeeninoperationforatleasttwo
years....(Italicssupplied.).

It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo
Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the operation of its
business as a common carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and
SabinaBorja)laterconvertedthepartnershipintoacorporateentity,byregisteringitsarticlesofincorporationwith
theSecuritiesandExchangeCommissiononJune20,1956.Thefirmname"LagunaTransportationCompany"
wasnotaltered,exceptwiththeadditionoftheword"Inc."toindicatethatpetitionerwasdulyincorporatedunder
existinglaws.Thecorporationcontinuedthesametransportationbusinessoftheunregisteredpartnership,using
the same lines and equipment. There was, in effect, only a change in the form of the organization of the entity
engagedinthebusinessoftransportationofpassengers.Hence,saidentityasanemployerengagedinbusiness,
wasalreadyinoperationforatleast3yearspriortotheenactmentoftheSocialSecurityActonJune18,1954
andforatleasttwoyearspriortothepassageoftheamendatoryactonJune21,1957.Petitionerarguesthat,
sinceitwasregisteredasacorporationwiththeSecuritiesandExchangeCommissiononlyonJune20,1956,it
mustbeconsideredtohavebeeninoperationonlyonsaiddate.Whileitistruethatacorporationonceformedis
conferred a juridical personality separate and district from the persons composing it, it is but a legal fiction
introducedforpurposesofconvenienceandtosubservetheendsofjustice.Theconceptcannotbeextendedto
a point beyond its reasons and policy, and when invoked in support of an end subversive of this policy, will be
disregardedbythecourts.(13Am.Jur.160.)

Ifanygeneralrulecanbelaiddown,inthepresentstateofauthority,itisthatacorporationwillbelooked
uponasalegalentityasageneralrule,anduntilsufficientreasontothecontraryappearsbut,whenthe
motionoflegalentityisusedtodefeatpublicconvenience,justifywrong,protectfraud,ordefendcrime,the
law will regard the corporation as an association of persons. (1 Fletcher Cyclopedia Corporations [Perm.
Ed.]135136U.S.MilwaukeeRefrigerationTransitCo.,142Fed.247,citedinKoppelPhilippines,Inc.vs.
Yatco,43Off.Gaz.,4604.)

Toadoptpetitioner'sargumentwoulddefeat,ratherthanpromote,theendsforwhichtheSocialSecurityActwas
enacted.Anemployercouldeasilycircumventthestatutebysimplychanginghisformoforganizationeveryother
year,andthenclaimexemptionfromcontributiontotheSystemasrequired,onthetheorythat,asanewentity,it
has not been in operation for a period of at least 2 years. the door to fraudulent circumvention of the statute
would,thereby,beopened.

Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation
commencedonApril1,1949whileitwasapartnershipandcontinuedbythecorporationuponitsformationon
June 20, 1956. Unlike in the conveyance made by the Bian Transportation Company to the partners Gonzalo
Mercado,ArtemioMercado,FlorentinoMata,andDominadorVeraCruz,nomentionwhatsoeverismadeeitherin
thepleadingsorinthestipulationoffactsthatthelinesandequipmentoftheunregisteredpartnershiphadbeen
soldandtransferredtothecorporation,petitionerherein.Thisomission,toourmind,clearlyindicatesthatthere
was,infact,notransferofinterest,butamerechangeintheformoftheorganizationoftheemployerengagedin
the transportation business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will
looktothesubstanceandnottotheform.(ColonialTrustCo.vs.MontoloEricWorks,172Fed.310Metropolitan
HoldingCo.vs.Snyder,79F.2d263,103A.L.R.612Arnoldvs.Willits,etal.,44Phil.,6341FletcherCyclopedia
Corporations[Perm.Ed.]139140.)

Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of
membersofapartnershipwhosebusinessandpropertywasconveyedandtransferredtothecorporationforthe
purposeofcontinuingitsbusiness,inpaymentforwhichcorporatecapitalstockwasissued,suchcorporationis
presumedtohaveassumedpartnershipdebts,andisprimafacieliabletherefor.(Stowellvs.GardenCityNews
Corps.,57P.2d12ChicagoSmelting&RefiningCorp.vs.Sullivan,246IU,App.538Ballvs.Bross.,83June19,
N.Y.Supp.692.)Thereasonfortheruleisthatthemembersofthepartnershipmaybesaidtohavesimplyputon
a new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership. (8
FletcherCyclopediaCorporations[Perm.Ed.]402411.)

Wherefore, finding no error in the judgment of the court aquo, the same is hereby affirmed, with costs against
petitionerappellant.Soordered.

Paras,C.J.,Bengzon,Montemayor,BautistaAngelo,Labrador,ConcepcionandGutierrez,David,JJ.,concur.

TheLawphilProjectArellanoLawFoundation