G.R. No. L-14606; April 28, 1960
Laguna Transportation Co., Inc., petitioner-appellant, vs. Social Security System, respondent-appellee.

FACTS

Petitioner Laguna Transportation Co., Inc. filed a petition seeking a declaration that it is not bound to register as a member of the Social Security System (SSS) or pay contributions under the Social Security Act. The SSS contended that petitioner was covered by the Act as its business had been in operation for at least two years prior to September 1, 1957. The parties submitted a stipulation of facts. It was established that an unregistered partnership named Laguna Transportation Company, composed of four individuals, commenced operating a transportation business on April 1, 1949. On June 20, 1956, the original partners, along with two new members, incorporated the business as Laguna Transportation Company, Inc., which continued the same transportation business using the same lines and equipment. The corporation requested exemption from SSS coverage, arguing it started operations only upon its incorporation in 1956. The SSS denied the request, asserting the business had been in operation for at least two years. The Court of First Instance of Laguna ruled in favor of the SSS, declaring petitioner subject to compulsory coverage.

ISSUE

Whether the petitioner corporation, which succeeded an unregistered partnership that had been operating the same business since 1949, is considered an employer that “has been in operation for at least two years” under Section 9 of the Social Security Act, and is therefore subject to compulsory coverage by the SSS.

RULING

The Supreme Court affirmed the lower court’s decision, ruling that petitioner is subject to compulsory coverage. The Court held that the entity engaged in the transportation business had been in operation since 1949. The mere change in its organizational form from an unregistered partnership to a corporation on June 20, 1956, did not create a new employer entity for the purpose of the Social Security Act. The corporation was a mere continuation of the partnership, using the same business, lines, and equipment. To adopt petitioner’s argument that it commenced operations only upon incorporation would allow employers to easily circumvent the Social Security Act by periodically changing their form of organization and claiming exemption. The legal fiction of a corporation’s separate juridical personality will be disregarded when it is used to defeat public convenience or the policy of the law. The substance of the transaction, not its form, controls. The business had been in operation for well over two years prior to the relevant dates of the Social Security Act and its amendment, thus making petitioner compulsorily coverable.