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APPEAL from a judgment of the Court of First Instance of
Laguna. Alikpala, J.
The facts are stated in the opinion of the Court.
Yatco & Yatco for appellant.
Solicitor General Edilberto Barot, Solicitor Camilo
Quiazon and Crispin Baizas for appellee.
[No. L-14606. April 28, 1960] BARRERA, J.:
LAGUNA TRANSPORTATION Co., INC., petitioner and On January 24, 1958, petitioner Laguna Transportation
appellant, vs.'SOCIAL SECURITY SYSTEM, respondent Co., Inc. filed with the Court of First Instance of Laguna a
and appellee. petition praying that an order be issued by the court
declaring that it is not bound to register as a member of
1. CORPORATIONS; CONCEPT OF SEPARATE AND respondent Social Security System and, therefore, not
DlSTINCT PERSONALITY, WHEN DISREGARDED BY obliged to pay to the latter1 the contributions required
COURTS.—Although a corporation once formed is under the Social Security Act. To this petition, respondent
conferred a juridical personality separate and distinct filed its answer on February 11, 1958 praying for its
from the persons composing it, it is but a legal fiction dismissal due to petitioner's failure to exhaust
introduced for purposes of convenience and to subserve administrative remedies, and for a declaration that
the ends of justice. The concept cannot be extended to a petitioner is covered by said Act, since the latter's business
point beyond its reasons and policy, and when invoked in has been in operation for at least 2 years prior to
support of an end subversive of this policy, will be September 1, 1957.
disregarded by the courts. (13. Am. Jur. 160.) 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
834 for preliminary hearing, it was postponed by agreement of
the parties. Subsequently, it was set for trial.
834 PHILIPPINE REPORTS ANNOTATED
________________
Laguna Trans. Co., Inc. vs. Social Security System
1 Rep. Act No. 1161, as amended by Rep. Act No. 1792, which took
effect on June 21, 1957.
2. ID.; ID.; CORPORATE LIABILITY FOR PARTNERSHIP
DEBTS.—The weight of authority supports the view that 835
where a corporation was formed by, and consisted of
members of a partnership whose business and property
was conveyed and transferred to the corporation for the VOL. 107, APRIL 28, 1960 835
purpose of continuing its business, in payment for which Laguna Trans. Co., Inc. vs. Social Security System
corporate capital stock was issued, such corporation is
presumed to have assumed partnership debts, and is On the date of the trial, the parties agreed to present, in
prima facie liable therefor. (Stowell vs. Garden City News lieu of any other evidence, a stipulation of facts, which they
Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. did on May 27, 1958, as follows:
Sullivan, 246 111. App. 539; Ball vs. Bros., 83 June 19,
N.Y. Supp. 692.) The reason for the rule is that the "1. That petitioner is a domestic corporation duly
members of the partnership may be said to have simply organized and existing under the laws of the
put on a new coat, or taken on a corporate cloak, and the Philippines, with principal place of business at
corporation is a mere continuation of the partnership. (8 Biñan, Laguna;
Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.) "2. That respondent is an agency created under
Republic Act No. 1161, as amended by Republic Act
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No. 1792, with the principal place of business at the Name No. of Amount Amount
new GSIS Bldg., corner Arroceros and Concepcion Shares Subscribed Paid
Streets, Manila, where it may be served with Sabina Borja 64 6,400.00 1,750.00
summons; ....................................... shares
"3. That respondent has served notice upon the 1,000 P100,000.00 P27,481.55
petitioner requiring it to register as member of the shares
System and to remit the premiums due from all the
employees of the petitioner and the contribution of
"8. That the corporation ontinued the same
the latter to the System beginning the month of
transportation business of the unregistered
September, 1957;
partnership;
"4. That sometime in 1949, the Biñan Transportation
Co., a corporation duly registered with the 836
Securities and Exchange Commission, sold part of
the lines and equipment it operates to Gonzalo
Mercado, Artemio Mercado, Florentino Mata and 836 PHILIPPINE REPORTS ANNOTATED
Dominador Vera Cruz; Laguna Trans. Co., Inc. vs. Social Security System
"5. That after the sale, the said vendees formed an
unregistered partnership under the name of "9. That the plaintiff filed on August 30, 1957 an
Laguna Transportation Company which continued Employee's Data Record * * * and a supplemental
to operate the lines and equipment bought from the Information Sheet * * *;
Biñan Transportation Company, in addition to new "10. That prior to November 11, 1957, plaintiff
lines which it was able to secure from the Public requested for exemption from coverage by the
Service Commission; System on the ground that it started operation only
"6. That the original partners forming the Laguna on June 20, 1956, when it was registered with the
Transportation Company, with the addition of two Securities and Exchange Commission but on
new members, organized a corporation known as November 11, 1957, the Social Security System
the Laguna Transportation Company, Inc., which notified plaintiff that it was covered;
was registered with the Securities and Exchange "11. On November 14, 1957, plaintiff through counsel
Commission on June 20, 1956, and which sent a letter to the Social Security System
corporation is the plaintiff now in this case; contesting the claim of the System that plaintiff
'7. That the incorporators of the Laguna was covered, * * *;
Transportation Company, Inc., and their "12. On November 27, 1957, Carlos Sanchez, Manager of
corresponding shares are as follows: the Production Department of the respondent
System for and in behalf of the Acting
Name No. of Amount Amount
Administrator, informed plaintiff that plaintiff's
Shares Subscribed Paid
business has been in actual operation for at least
"Dominador Cruz 333 P33,300.00 P9,160.81 two years, * * *;"
.............................. shares
Maura Mendoza 333 33,300.00 9,160.81 On the basis of the foregoing stipulation of facts, the court,
................................. shares on August 15, 1958, rendered a decision the dispositive
part of which reads:
Gonzalo Mercado 66 6,600.00 1,822.49
.............................. shares "Wherefore, the Court is of the opinion and so declares that the
Artemio Mercado 94 9,400.00 2,565.90 petitioner was an employer engaged in business as common
.............................. shares carrier which had been in operation for at least two years prior to
the enactment of Republic Act No. 1161, as amended by Republic
Florentino Mata 110 11.000.00 3,021.54
................................ shares
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Act 1792 and by virtue thereof, it was subject to compulsory since it was registered as a corporation with the Securities
coverage under said law. * * *." and Exchange Commission only on June 20, 1956, it must
be considered to have been in operation only on said date.
From this decision, petitioner appealed directly to us, While it is true that a corporation once formed is conferred
raising purely questions of law. a juridical personality separate and distinct from the
Petitioner claims that the lower court erred in holding persons composing it, it is but a legal fiction introduced for
that it is an employer engaged in business as a common purposes of convenience and to subserve the ends of justice,
carrier which had been in operation for at least 2 years The concept cannot be extended to a point beyond its
prior to the enactment of the Social Security Act and, reasons and policy, and when invoked in support of an end
therefore, subject to compulsory coverage thereunder. subversive of this policy, will be disregarded by the courts.
Section 9 of the Social Security Act, in part, provides: (13 Am. Jur. 160.)
"SEC. 9. Compulsory Coverage.—Coverage in the System shall be "If any general rule can be laid down, in the present state of
compulsory upon all employees between the ages of sixteen and authority, it is that a corporation will be looked upon as a legal
sixty years, inclusive, if they have been for at least six months in entity as a general rule, and until sufficient reason to the contrary
the service of an employer who is a member of the System. appears; but, when the notion of legal entity is used to defeat
Provided, That the Commission may not compel any employer to public convenience, justify wrong, protect fraud, or defend crime,
become a member of the System unless he shall have been in the law will regard the corporation as an association of persons."
operation for at least two years * * *." (Italics supplied.) (1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S.
It is not disputed that the Laguna Transportation 838
Company, an unregistered partnership composed of
Gonzalo
838 PHILIPPINE REPORTS ANNOTATED
837
Laguna Trans. Co., Inc. vs. Social Security System
VOL. 107, APRIL 28, 1960 837 Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in
Laguna, Trans. Co., Inc. vs. Social Security System Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)
To adopt petitioner's argument would defeat, rather than
Mercado, Artemio Mercado, Florentina Mata, and promote, the ends for which the Social Security Act was
Dominador Vera Cruz, commenced the operation of its enacted. An employer could easily circumvent the statute
business as a common carrier on April 1, 1949. These 4 by simply changing his form of organization every other
original partners, with 2 others (Maura Mendoza and year, and then claim exemption from contribution to the
Sabina Borja) later converted the partnership into a System as required, on the theory that, as a new entity, it
corporate entity, by registering its articles of incorporation has not been in operation for a period of at least 2 years.
with the Securities and Exchange Commission on June 20, The door to fraudulent circumvention of the statute would,
1956. The firm name "Laguna Transportation Company" thereby, be opened.
was not altered, except with the addition of the word "Inc." Moreover, petitioner admitted that as an employer
to indicate that petitioner was duly incorporated under engaged in the business of a common carrier, its operation
existing laws. The corporation continued the same commenced on April 1, 1949 while it was a partnership and
transportation business of the unregistered partnership, continued by the corporation upon its formation on June
using the same lines and equipment. There was, in effect, 20, 1956. Unlike in the conveyance made by the Biñan
only a change in the form of the organization of the entity Transportation Company to the partners Gonzalo Mercado,
engaged in the business of transportation of passengers. Artemio Mercado, Florentino Mata, and Dominador Vera
Hence, said entity as an employer engaged in business, was Cruz, no mention whatsoever is made either in the
already in operation for at least 3 years prior to the pleadings or in the stipulation of facts that the lines and
enactment of the Social Security Act on June 18, 1954 and equipment of the unregistered partnership had been sold
for at least two years prior to the passage of the and transferred to the corporation, petitioner herein. This
amendatory act on June 21, 1957. Petitioner argues that,
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omission, to our mind, clearly indicates that there was, in
fact, no transfer of interest, but a mere change in the form
of the organization of the employer engaged in the
transportation business, i.e., from an unregistered
partnership to that of a corporation. As a rule, courts will
look to the substance and not to the form. (Colonial Trust
Co. vs. Montollo Eric Works, 172 Fed. 310; Metropolitan
Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612;
Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher
Cyclopedia Corporations [Perm. Ed.] 139-140.)
Finally, the weight of authority supports the view that
where a corporation was formed by, and consisted of
members of a partnership whose business and property
was conveyed and transferred to the corporation for the
purpose of continuing its business, in payment for which
839
VOL. 107, APRIL 28, 1960 839
Afan vs. De Guzman
corporate capital stock was issued, such corporation is
presumed to have assumed partnership debts, and is prima
facie liable therefor. (Stowell vs. Garden City News Corps.,
57 P. 2d 12; Chicago Smelting & Refining Corp. vs.
Sullivan, 246 IU, App. 538; Ball vs. Bros., 83 June 19, N.Y.
Supp. 692.) The reason for the rule is that the members of
the partnership may be said to have simply put on a new
coat, or taken on a corporate cloak, and the corporation is a
mere continuation of the partnership. (8 Fletcher
Cyclopedia Corporations [Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court
a quo, the same is hereby affirmed, with costs against
petitioner-appellant. So ordered.
Parás, C. J., Bengzon, Montemayor, Bautista Angelo,
Labrador, Concepción, and Gutiérrez David, JJ., concur.
Judgment affirmed.
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