Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15045

January 20, 1961

IN RE: PETITION FOR EXEMPTION FROM COVERAGE BY THE SOCIAL SECURITY

SYSTEM. ROMAN CATHOLIC ARCHBISHOP OF MANILA, petitioner-appellant,
vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.
Feria, Manglapus and Associates for petitioner-appellant.
Legal Staff, Social Security System and Solicitor General for respondent-appellee.
GUTIERREZ DAVID, J.:
On September 1, 1958, the Roman Catholic Archbishop of Manila, thru counsel, filed with
the Social Security Commission a request that "Catholic Charities, and all religious and
charitable institutions and/or organizations, which are directly or indirectly, wholly or
partially, operated by the Roman Catholic Archbishop of Manila," be exempted from
compulsory coverage of Republic Act No. 1161, as amended, otherwise known as the
Social Security Law of 1954. The request was based on the claim that the said Act is a labor law
and does not cover religious and charitable institutions but is limited to businesses and activities
organized for profit. Acting upon the recommendation of its Legal Staff, the Social Security
Commission in its Resolution No. 572, series of 1958, denied the request. The Roman Catholic
Archbishop of Manila, reiterating its arguments and raising constitutional objections, requested for
reconsideration of the resolution. The request, however, was denied by the Commission in its
Resolution No. 767, series of 1958; hence, this appeal taken in pursuance of section 5(c) of
Republic Act No. 1161, as amended.
Section 9 of the Social Security Law, as amended, provides that coverage "in the System shall
be compulsory upon all members between the age of sixteen and sixty rears inclusive, if
they have been for at least six months a the service of an employer who is a member of the
System, Provided, that the Commission may not compel any employer to become member
of the System unless he shall have been in operation for at least two years and has at the
time of admission, if admitted for membership during the first year of the System's
operation at least fifty employees, and if admitted for membership the following year of
operation and thereafter, at least six employees x x x." The term employer" as used in the law
is defined as any person, natural or juridical, domestic or foreign, who carries in the Philippines
any trade, business, industry, undertaking, or activity of any kind and uses the services of another
person who is under his orders as regards the employment, except the Government and any of its
political subdivisions, branches or instrumentalities, including corporations owned or controlled by
the Government" (par. [c], see. 8), while an "employee" refers to "any person who performs
services for an 'employer' in which either or both mental and physical efforts are used and who
receives compensation for such services" (par. [d], see. 8). "Employment", according to paragraph
[i] of said section 8, covers any service performed by an employer except those expressly
enumerated thereunder, like employment under the Government, or any of its political
subdivisions, branches or instrumentalities including corporations owned and controlled by the
Government, domestic service in a private home, employment purely casual, etc.

From the above legal provisions, it is apparent that the coverage of the Social Security Law is
predicated on the existence of an employer-employee relationship of more or less permanent
nature and extends to employment of all kinds except those expressly excluded.
Appellant contends that the term "employer" as defined in the law should following the principle
of ejusdem generis be limited to those who carry on "undertakings or activities which have the
element of profit or gain, or which are pursued for profit or gain," because the phrase ,activity of
any kind" in the definition is preceded by the words "any trade, business, industry, undertaking."
The contention cannot be sustained.
The rule ejusdem generis applies only where there is uncertainty. It is not controlling where the
plain purpose and intent of the Legislature would thereby be hindered and defeated. (Grosjean vs.
American Paints Works [La], 160 So. 449). In the case at bar, the definition of the term
"employer" is, we think, sufficiently comprehensive as to include religious and charitable
institutions or entities not organized for profit, like herein appellant, within its meaning.
This is made more evident by the fact that it contains an exception in which said
institutions or entities are not included. And, certainly, had the Legislature really intended to
limit the operation of the law to entities organized for profit or gain, it would not have defined an
"employer" in such a way as to include the Government and yet make an express exception of it.
It is significant to note that when Republic Act No. 1161 was enacted, services performed in
the employ of institutions organized for religious or charitable purposes were by express
provisions of said Act excluded from coverage thereof (sec. 8, par. [j] subpars. 7 and 8). That
portion of the law, however, has been deleted by express provision of Republic Act No. 1792,
which took effect in 1957. This is clear indication that the Legislature intended to include charitable
and religious institutions within the scope of the law.
In support of its contention that the Social Security Law was intended to cover only employment
for profit or gain, appellant also cites the discussions of the Senate, portions of which were quoted
in its brief. There is, however, nothing whatsoever in those discussions touching upon the question
of whether the law should be limited to organizations for profit or gain. Of course, the said
discussions dwelt at length upon the need of a law to meet the problems of industrializing society
and upon the plight of an employer who fails to make a profit. But this is readily explained by the
fact that the majority of those to be affected by the operation of the law are corporations and
industries which are established primarily for profit or gain.
Appellant further argues that the Social Security Law is a labor law and, consequently, following
the rule laid down in the case of Boy Scouts of the Philippines vs. Araos (G.R. No. L-10091,
January 29, 1958) and other cases1, applies only to industry and occupation for purposes of profit
and gain. The cases cited, however, are not in point, for the reason that the law therein involved
expressly limits its application either to commercial, industrial, or agricultural establishments, or
enterprises. .
Upon the other hand, the Social Security Law was enacted pursuant to the "policy of the
Republic of the Philippines to develop, establish gradually and perfect a social security
system which shall be suitable to the needs of the people throughout the Philippines and
shall provide protection to employees against the hazards of disability, sickness, old age
and death." (See. 2, Republic Act No. 1161, as amended.) Such enactment is a legitimate
exercise of the police power. It affords protection to labor, especially to working women
and minors, and is in full accord with the constitutional provisions on the "promotion of
social justice to insure the well-being and economic security of all the people." Being in
fact a social legislation, compatible with the policy of the Church to ameliorate living

conditions of the working class, appellant cannot arbitrarily delimit the extent of its
provisions to relations between capital and labor in industry and agriculture.
There is no merit in the claim that the inclusion of religious organizations under the coverage of
the Social Security Law violates the constitutional prohibition against the application of public
funds for the use, benefit or support of any priest who might be employed by appellant. The funds
contributed to the System created by the law are not public funds, but funds belonging to
the members which are merely held in trust by the Government. At any rate, assuming that
said funds are impressed with the character of public funds, their payment as retirement
death or disability benefits would not constitute a violation of the cited provisions of the
Constitution, since such payment shall be made to the priest not because he is a priest but
because he is an employee.
Neither may it be validly argued that the enforcement of the Social Security Law impairs
appellant's right to disseminate religious information. All that is required of appellant is to make
monthly contributions to the System for covered employees in its employ. These contributions,
contrary to appellant's contention, are not in the nature of taxes on employment." Together with the
contributions imposed upon the employees and the Government, they are intended for the
protection of said employees against the hazards of disability, sickness, old age and death in line
with the constitutional mandate to promote social justice to insure the well-being and economic
security of all the people.
IN VIEW OF THE FOREGOING, Resolutions Nos. 572 kind 767, series of 1958, of the Social
Security Commission are hereby affirmed. So ordered with costs against appellant.
Paras, C.J., Padilla, Bautista Angelo, Paredes and Dizon, JJ., concur.
Concepcion, Reyes, J.B.L. and Barrera, JJ., concur in the result.
Bengzon, J., reserves his vote.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21223

August 31, 1966

PHILIPPINE BLOOMING MILLS CO., INC. (As Employer) and FRANCISCO TONG (As
Assistant General Manager) and Attorney-in-Fact of SUSUMO SONODA, SENJI TANAKA,
TAKASHIKO KUMAMOTO, HITOSHI NAKAMURA, TETSUO KODU, (Employees), petitioners
and appellants,

vs.
SOCIAL SECURITY SYSTEM, respondent and appellee.
Demetrio B. Salem for petitioners and appellants.
Office of the Solicitor General Edilberto Barot and Solicitor Camilo D. Quiason for respondent and
appellee.
BARRERA, J.:
The facts of this case are not disputed:
The Philippine Blooming Mills Co., Inc., a domestic corporation since the start of its operations in
1957, has been employing Japanese technicians under a pre-arranged contract of employment,
the minimum period of which employment is 6 months and the maximum is 24 months.
From April 28, 1957, to October 26, 1958, the corporation had in its employ 6 Japanese
technicians. In connection with the employment of these aliens, it sent an inquiry to the
Social Security System (SSS) whether these employees are subject to compulsory
coverage under the System, which inquiry was answered by the First Deputy Administrator of
the SSS, under date of August 29, 1957, as follows:
SIR:
With reference to your letter of August 24, 1957, hereunder are our answers to your
queries:
Aliens employed in the Philippines:
Aliens who are employed in the Philippines shall also be compulsorily covered. But
aliens who are employed temporarily shall, upon their departure from the Philippines,
be entitled to a rebate of a proportionate amount of their contributions; their
employers shall be entitled to the same proportionate rebate of their contributions in
behalf of said aliens employed by them. (Rule I, Sec. 3[d], Rules and Regulations.)
Starting September, 1957, and until the aforementioned Japanese employees left the Philippines
on October 26, 1958, the corresponding premium contributions of the employer and the
employees on the latter's memberships in the SSS were as follows:

Name

SS Number

Monthly Salary

Amount of Premiums
Contributed
2.5%
(Employee)

3.5%
(Employer)

Total

Susumu Sonoda

03-075177

P520.00

P175.00

P245.00

P420.00

Senji Tanaka

03-075178

520.00

175.00

245.00

420.00

Kahei Tanaka

03-075179

500.00

175.00

245.00

420.00

Takashiko Kumamoto

03-075180

500.00

175.00

245.00

420.00

Hitoshi Nakamura

03-075181

500.00

175.00

245.00

420.00

Tetsuo Kudo

03-075182

500.00

175.00

245.00

420.00

Total

P1,050.00

P1,470.00

P2,520.00

On October 7, 1958, the Assistant General Manager of the corporation, on its behalf and as
attorney-in-fact of the Japanese technicians, filed a claim with the SSS for the refund of the
premiums paid to the System, on the ground of termination of the members' employment. As this
claim was denied, they filed a petition with the Social Security Commission for the return or
refund of the premiums, in the total sum of P2,520.00, paid by the employer corporation and the 6
Japanese employees, plus attorneys' fees. This claim was controverted by the SSS, alleging that
Rule IX of the Rules and Regulations of the System, as amended, requires membership in the
System for at least 2 years before a separated or resigned employee may be allowed a
return of his personal contributions. Under the same rule, the employer is not also entitled
to a refund of the premium contributions it had paid.
After hearing, the Commission denied the petition for the reason that, although under the
original provisions of Section 3 (d) of Rule I of the Rules and Regulations of the SSS, alienemployees (who are employed temporarily) and their employers are entitled to a rebate of a
proportionate amount of their respective contributions upon the employees' departure from the
Philippines, said rule was amended by eliminating that portion granting a return of the premium
contributions. This amendment became effective on January 14, 1958, or before the employment
of the subject aliens terminated. The rights of covered employees who are separated from
employment, under the present Rules, are covered by Rule IX which allows a return of the
premiums only if they have been members for at least 2 years.
It is this resolution of the Commission that is the subject of the present appeal, appellants
contending that the amendment of the Rules and Regulations of the SSS, insofar as it eliminates
the provision on the return of premium contributions, originally embodied in Section 3(d) of Rule I,
constituted an impairment of obligations of contract. It is claimed, in effect, that when appellantsemployees became members in September, 1957, and paid the corresponding premiums to the
System, it1 is subject to the condition that upon their departure from the Philippines, these
employees, as well as their employer, are entitled to a rebate of a proportionate amount of their
respective contributions.
The contention cannot be sustained. Appellants' argument is based on the theory that the
employees' membership in the System established contractual relationship between the members
and the System, in the sense contemplated and protected by the constitutional prohibition against
its impairment by law. But, membership in this institution is not the result of a bilateral, consensual
agreement where the rights and obligations of the parties are defined by and subject to their will.
Republic Act 1161 requires compulsory coverage of employers and employees under the System.
It is actually a legal imposition, on said employers and employees, designed to provide social
security to the workingmen. Membership in the SSS is, therefore, in compliance with a lawful
exercise of the police power of the State, to which the principle of non-impairment of the obligation
of contract is not a proper defense.
As pointed out by the Solicitor General, the issue that should be determined in this case is
whether, in implementing the SSS law and denying appellants' claim for refund of their premium
contributions, due process was observed.
The Rules and Regulations promulgated by the SSS, pursuant to the rule-making authority
granted in Section 4(a) of Republic Act 1161, was duly approved by the President on July 18,
1957, and published in the Official Gazette on September 15, 1957. 2 These rules and regulations,
among others, provide:
I
DETERMINATION OF COMPULSORY COVERAGE

3. The determination of whether an employer or an employee shall be compulsorily covered shall

be vested in the Commission. The following general principles shall guide the Commission in
deciding each case:
xxx

xxx

xxx

(d) Aliens who are employed in the Philippines shall also be compulsorily covered. But
aliens who are employed temporarily and whose visas are only for fixed terms shall, upon
their departure from the Philippines, be entitled to a rebate of a proportionate amount of
their contributions; their employers shall be entitled to the same proportionate rebate of
their contributions in behalf of said aliens employed by them.

XI
AMENDMENTS AND EFFECTIVITY
1. The Commission may, by appropriate resolution, amend, repeal, revise and/or modify all
or any part or parts of these Rules and Regulations, as well as adopt any additional rule or
rules, whenever the need therefor should arise. Any amendment and/or additional rule,
however, shall not take effect until and after the corresponding resolution of the
Commission has been submitted to and approved by the President of the Philippines.
2. These Rules and Regulations, any amendment thereof, or any additional rule or rules
subsequently adopted by the Commission, shall take effect on the date they are approved
by the President of the Philippines.
Rule I Section 3 (d) and Rule IX, however, were later amended, which amendment was approved
by the President on January 14, 1958, to read as follows:
(d) Aliens who are employed in the Philippines shall also be compulsorily covered (Sec. 3,
Rule I)
EFFECT OF SEPARATION FROM EMPLOYMENT
When an employee under compulsory coverage is separated from employment, his
employer's contribution on his account shall cease at the end of the month of
separation; but such employee may continue his membership in the System and
receive the benefits of the Act, as amended, in accordance with these rules. If he
continues paying the 6 per cent monthly premiums representing his as well as the
employer's contribution, based on his monthly salary at the time of his separation;
but if at the time of his separation the covered employee has been a member of the
System for at least two years, he shall have the option to choose any one of the
following adjustments of his membership in the System:
1. A refund of an amount equivalent to his total contributions of two and one-half per
centum plus interests at the rate of three per centum per annum, compounded
annually;
xxx

xxx

x x x (Rule IX)

These amended Rules were published in the November 10, 1958 issue of the Official Gazette. 3

It is not here disputed that the Rules and Regulations of the SSS, having been promulgated in
implementation of a law, have the force and effect of a statute;" that the amendment thereto,
although approved by the President on January 14, 1958, was published in the Official Gazette in
November, 1958, or after the employment of the Japanese technicians had ceased and the
corresponding claim for the refund of the premium contributions was filed with the System. The
question pertinent to this case now is whether or not appellants are bound by the amended
Rules requiring membership for two years before refund of the premium contributions may
be allowed.
These rules and regulations were promulgated to provide guidelines to be observed in the
enforcement of the law. As a matter of fact, Section 3 of Rule I is merely an enumeration of the
"general principles to (shall) guide the Commission" in the determination of the extent or scope of
the compulsory coverage of the law. One of these guiding principles is paragraph (d) relied upon
by appellants, on the coverage of temporarily-employed aliens. It is not here pretended, that the
amendment of this Section 3(d) of Rule I, as to eliminate the provision granting to these aliens the
right to a refund of part of their premium contributions upon their departure from the Philippines, is
not in implementation of the law or beyond the authority of the Commission to do.
It may be argued, however, that while the amendment to the Rules may have been lawfully
made by the Commission and duly approved by the President on January 14, 1958, such
amendment was only published in the November 1958 issue of the Official Gazette, and
after appellants' employment had already ceased. Suffice it to say, in this regard, that under
Article 2 of the Civil Code,5 the date of publication of laws in the Official Gazette is material
for the purpose of determining their effectivity, only if the statutes themselves do not so
provide.
In the present case, the original Rules and Regulations of the SSS specifically provide that
any amendment thereto subsequently adopted by the Commission, shall take effect on the
date of its approval by the President. Consequently, the delayed publication of the
amended rules in the Official Gazette did not affect the date of their effectivity, which is
January 14, 1958, when they were approved by the President. It follows that when the
Japanese technicians were separated from employment in October, 1958, the rule
governing refund of premiums is Rule IX of the amended Rules and Regulations, which
requires membership for 2 years before such refund of premiums may be allowed.
Wherefore, finding no error in the resolution of the Commission appealed from, the same is hereby
affirmed, with costs against the appellants. So ordered.
Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Reyes J.B.L., J., reserves his vote.
Regala, J., is on leave.

FIRST DIVISION
SOCIAL
COMMISSION,

SECURITY

G.R. No. 167050

Petitioner,
Present:

-versus-

CORONA, C.J.,
Chairperson
VELASCO, JR.,
LEONARDO-DE CASTRO,

PERALTA,* and
PEREZ, JJ.

RIZAL POULTRY and LIVESTOCK

ASSOCIATION, INC., BSD AGRO
INDUSTRIAL
DEVELOPMENT
CORPORATION and BENJAMIN SAN
Promulgated:
DIEGO,
Respondents.
June 1, 2011
x ----------------------------------------------------------------------------------------x
DECISION
PEREZ, J.:
This petition for certiorari challenges the Decision[1] dated 20 September 2004 and
Resolution[2] dated 9 February 2005 of the Court of Appeals. The instant case stemmed from a
petition filed by Alberto Angeles (Angeles) before the Social Security Commission (SSC) to
compel respondents Rizal Poultry and Livestock Association, Inc. (Rizal Poultry) or BSD
Agro Industrial Development Corporation (BSD Agro) to remit to the Social Security System
(SSS) all contributions due for and in his behalf. Respondents countered with a Motion to
Dismiss[3] citing rulings of the National Labor Relations Commission (NLRC) and Court of
Appeals regarding the absence of employer-employee relationship between Angeles and
the respondents.
As a brief backgrounder, Angeles had earlier filed a complaint for illegal dismissal against
BSD Agro and/or its owner, Benjamin San Diego (San Diego). The Labor Arbiter initially found
that Angeles was an employee and that he was illegally dismissed. On appeal, however, the
NLRC reversed the Labor Arbiters Decision and held that no employer-employee relationship
existed between Angeles and respondents. The ruling was anchored on the finding that the
duties performed by Angeles, such as carpentry, plumbing, painting and electrical works, were not
independent and integral steps in the essential operations of the company, which is engaged in
the poultry business.[4] Angeles elevated the case to the Court of Appeals via petition
for certiorari. The appellate court affirmed the NLRC ruling and upheld the absence of
employer-employee relationship.[5] Angeles moved for reconsideration but it was denied by the
Court of Appeals.[6] No further appeal was undertaken, hence, an entry of judgment was made on
26 May 2001.[7]
At any rate, the SSC did not take into consideration the decision of the NLRC. It denied
respondents motion to dismiss in an Order dated 19 February 2002. The SSC ratiocinated, thus:
Decisions of the NLRC and other tribunals on the issue of existence of
employer-employee relationship between parties are not binding on the
Commission. At most, such finding has only a persuasive effect and does not
constitute res judicata as a ground for dismissal of an action pending before
Us. While it is true that the parties before the NLRC and in this case are the same,
the issues and subject matter are entirely different. The labor case is for illegal
dismissal with demand for backwages and other monetary claims, while the present

action is for remittance of unpaid SS[S] contributions. In other words, although in

both suits the respondents invoke lack of employer-employee relationship, the same
does not proceed from identical causes of action as one is for violation of the Labor
Code while the instant case is for violation of the SS[S] Law.
Moreover, the respondents arguments raising the absence of employeremployee relationship as a defense already traverse the very issues of the case at
bar, i.e., the petitioners fact of employment and entitlement to SS[S]
coverage. Generally, factual matters should not weigh in resolving a motion to
dismiss when it is based on the ground of failure to state a cause of action, but
rather, merely the sufficiency or insufficienciy of the allegations in the complaint. x x
x. In this respect, it must be observed that the petitioner very categorically set forth
in his Petition, that he was employed by the respondent(s) from 1985 to 1997. [8]
A subsequent motion for reconsideration filed by respondents was likewise denied on 11
June 2002. The SSC reiterated that the principle of res judicata does not apply in this case
because of the absence of the indispensable element of identity of cause of action. [9]
Unfazed, respondents sought recourse before the Court of Appeals by way of a petition
for certiorari. The Court of Appeals reversed the rulings of the SSC and held that there is a
common issue between the cases before the SSC and in the NLRC; and it is whether there
existed an employer-employee relationship between Angeles and respondents. Thus, the case
falls squarely under the principle of res judicata, particularly under the rule on conclusiveness of
judgment, as enunciated in Smith Bell and Co. v. Court of Appeals.[10]
The Court of Appeals disposed, thus:
WHEREFORE, the petition is GRANTED. The Order dated February 19,
2000 and the Resolution dated June 11, 2002 rendered by public respondent Social
Security
Commission
in
SSC
Case
No.
9-15225-01
are
hereby REVERSED and SET ASIDE and the respondent commission is ordered
to DISMISS Social Security Commission Case No. 9-15225-01.[11]
After the denial of their motion for reconsideration in a Resolution [12] dated 9 February 2005,
petitioner filed the instant petition.
For our consideration are the issues raised by petitioner, to wit:
WHETHER OR NOT THE DECISION OF THE NLRC AND THE COURT OF
APPEALS,
FINDING
NO
EMPLOYER-EMPLOYEE
RELATIONSHIP,
CONSTITUTES RES JUDICATA AS A RULE ON CONCLUSIVENESS OF
JUDGMENT AS TO PRECLUDE THE RELITIGATION OF THE ISSUE OF
EMPLOYER-EMPLOYEE RELATIONSHIP IN A SUBSEQUENT CASE FILED
BEFORE THE PETITIONER.
WHETHER OR NOT RESPONDENT COURT OF APPEALS MAY ORDER
OUTRIGHT THE DISMISSAL OF THE SSC CASE IN THE CERTIORARI
PROCEEDINGS BEFORE IT.[13]

SSC maintains that the prior judgment rendered by the NLRC and Court of Appeals, that no
employer-employee relationship existed between the parties, does not have the force of res
judicata by prior judgment or as a rule on the conclusiveness of judgment. It contends that the
labor dispute and the SSC claim do not proceed from the same cause of action in that the action
before SSC is for non-remittance of SSS contributions while the NLRC case was for illegal
dismissal. The element of identity of parties is likewise unavailing in this case, according to
SSC. Aside from SSS intervening, another employer, Rizal Poultry, was added as respondent in
the case lodged before the SSC. There is no showing that BSD Agro and Rizal Poultry refer to the
same juridical entity. Thus, the finding of absence of employer-employee relationship between
BSD Agro and Angeles could not automatically extend to Rizal Poultry. Consequently, SSC
assails the order of dismissal of the case lodged before it.
SSC also claims that the evidence submitted in the SSC case is different from that adduced
in the NLRC case. Rather than ordering the dismissal of the SSC case, the Court of Appeals
should have allowed SSC to resolve the case on its merits by applying the Social Security Act of
1997.
Respondents assert that the findings of the NLRC are conclusive upon the SSC under the
principle of res judicata and in line with the ruling in Smith Bell v. Court of Appeals. Respondents
argue that there is substantially an identity of parties in the NLRC and SSC cases because
Angeles himself, in his Petition, treated Rizal Poultry, BSD Agro and San Diego as one and the
same entity.
Respondents oppose the view proffered by SSC that the evidence to prove the existence of
employer-employee relationship obtaining before the NLRC and SSS are entirely
different. Respondents opine that the definition of an employee always proceeds from the
existence of an employer-employee relationship.
In essence, the main issue to be resolved is whether res judicata applies so as to preclude
the SSC from resolving anew the existence of employer-employee relationship, which issue was
previously determined in the NLRC case.
Res judicata embraces two concepts: (1) bar by prior judgment as enunciated in Rule 39,
Section 47(b) of the Rules of Civil Procedure; and (2) conclusiveness of judgment in Rule 39,
Section 47(c).[14]
There is bar by prior judgment when, as between the first case where the judgment was
rendered and the second case that is sought to be barred, there is identity of parties, subject
matter, and causes of action. In this instance, the judgment in the first case constitutes an
absolute bar to the second action.[15]
But where there is identity of parties in the first and second cases, but no identity of causes
of action, the first judgment is conclusive only as to those matters actually and directly
controverted and determined and not as to matters merely involved therein. This is the concept
of res judicata known as conclusiveness of judgment. Stated differently,any right, fact or matter

in issue directly adjudicated or necessarily involved in the determination of an action before a

competent court in which judgment is rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated between the parties and their privies, whether or
not the claim, demand, purpose, or subject matter of the two actions is the same. [16]
Thus, if a particular point or question is in issue in the second action, and the judgment will
depend on the determination of that particular point or question, a former judgment between the
same parties or their privies will be final and conclusive in the second if that same point or
question was in issue and adjudicated in the first suit. Identity of cause of action is not required
but merely identity of issue.[17]
The elements of res judicata are: (1) the judgment sought to bar the new action must be
final; (2) the decision must have been rendered by a court having jurisdiction over the subject
matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4)
there must be as between the first and second action, identity of parties, subject matter, and
causes of action. Should identity of parties, subject matter, and causes of action be shown in the
two cases, then res judicata in its aspect as a bar by prior judgment would apply. If as between
the two cases, only identity of parties can be shown, but not identical causes of action, then res
judicata as conclusiveness of judgment applies.[18]
Verily, the principle of res judicata in the mode of conclusiveness of judgment applies in
this case. The first element is present in this case. The NLRC ruling was affirmed by the Court of
Appeals. It was a judicial affirmation through a decision duly promulgated and rendered final and
executory when no appeal was undertaken within the reglementary period. The jurisdiction of the
NLRC, which is a quasi-judicial body, was undisputed. Neither can the jurisdiction of the Court of
Appeals over the NLRC decision be the subject of a dispute. The NLRC case was clearly decided
on its merits; likewise on the merits was the affirmance of the NLRC by the Court of Appeals.
With respect to the fourth element of identity of parties, we hold that there is substantial
compliance.
The parties in SSC and NLRC cases are not strictly identical. Rizal Poultry was impleaded
as additional respondent in the SSC case. Jurisprudence however does not dictate absolute
identity but only substantial identity.[19] There is substantial identity of parties when there is a
community of interest between a party in the first case and a party in the second case, even if the
latter was not impleaded in the first case.[20]
BSD Agro, Rizal Poultry and San Diego were litigating under one and the same entity both
before the NLRC and the SSC. Although Rizal Poultry is not a party in the NLRC case, there are
numerous indications that all the while, Rizal Poultry was also an employer of Angeles together
with BSD Agro and San Diego. Angeles admitted before the NLRC that he was employed by BSD
Agro and San Diego from 1985 until 1997. [21] He made a similar claim in his Petition before the

SSC including as employer Rizal Poultry as respondent. [22] Angeles presented as evidence before
the SSC his Identification Card and a Job Order to prove his employment in Rizal Poultry. He
clarified in his Opposition to the Motion to Dismiss [23] filed before SSC that he failed to adduce
these as evidence before the NLRC even if it would have proven his employment with BSD
Agro. Most significantly, the three respondents, BSD Agro, Rizal Poultry and San Diego, litigated
as one entity before the SSC. They were represented by one counsel and they submitted their
pleadings as such one entity. Certainly, and at the very least, a community of interest exists
among them. We therefore rule that there is substantial if not actual identity of parties both in the
NLRC and SSC cases.
As previously stated, an identity in the cause of action need not obtain in order to apply res
judicata by conclusiveness of judgment. An identity of issues would suffice.
The remittance of SSS contributions is mandated by Section 22(a) of the Social Security
Act of 1997, viz:
SEC. 22. Remittance of Contributions. - (a) The contributions imposed in the
preceding Section shall be remitted to the SSS within the first ten (10) days of each
calendar month following the month for which they are applicable or within such time
as the Commission may prescribe. Every employer required to deduct and to remit
such contributions shall be liable for their payment and if any contribution is not paid
to the SSS as herein prescribed, he shall pay besides the contribution a penalty
thereon of three percent (3%) per month from the date the contribution falls due until
paid. x x x.
The mandatory coverage under the Social Security Act is premised on the existence of an
employer-employee relationship.[24] This is evident from Section 9(a) which provides:
SEC. 9. Coverage. - (a) Coverage in the SSS shall be compulsory upon all
employees not over sixty (60) years of age and their employers: Provided, That in
the case of domestic helpers, their monthly income shall not be less than One
thousand pesos (P1,000.00) a month x x x.
Section 8(d) of the same law defines an employee as any person who performs services for
an employer in which either or both mental or physical efforts are used and who receives
compensation for such services, where there is an employer-employee relationship. The illegal
dismissal case before the NLRC involved an inquiry into the existence or non-existence of an
employer-employee relationship. The very same inquiry is needed in the SSC case. And there
was no indication therein that there is an essential conceptual difference between the definition of
employee under the Labor Code and the Social Security Act.
In the instant case, therefore, res judicata in the concept of conclusiveness of judgment
applies. The judgment in the NLRC case pertaining to a finding of an absence of employeremployee relationship between Angeles and respondents is conclusive on the SSC case.

A case in point is Smith Bell and Co. v. Court of Appeals [25] which, contrary to SSC, is apt
and proper reference. Smith Bell availed of the services of private respondents to transport
cargoes from the pier to the company's warehouse. Cases were filed against Smith Bell, one for
illegal dismissal before the NLRC and the other one with the SSC, to direct Smith Bell to report all
private respondents to the SSS for coverage. While the SSC case was pending before the Court
of Appeals, Smith Bell presented the resolution of the Supreme Court in G.R. No. L-44620, which
affirmed the NLRC, Secretary of Labor, and Court of Appeals finding that no employer-employee
relationship existed between the parties, to constitute as bar to the SSC case. We granted the
petition of Smith Bell and ordered the dismissal of the case. We held that the controversy is
squarely covered by the principle of res judicata, particularly under the rule on conclusiveness of
judgment. Therefore, the judgment in G.R. No. L-44620 bars the SSC case, as the relief sought
in the latter case is inextricably related to the ruling in G.R. No. L-44620 to the effect that private
respondents are not employees of Smith Bell.
The fairly recent case of Co v. People,[26] likewise applies to the present case. An
information was filed against Co by private respondent spouses who claim to be employees of the
former for violation of the Social Security Act, specifically for non-remittance of SSS
contributions. Earlier, respondent spouses had filed a labor case for illegal dismissal. The NLRC
finally ruled that there was no employer-employee relationship between her and respondent
spouses. Co then filed a motion to quash the information, arguing that the facts alleged in the
Information did not constitute an offense because respondent spouses were not her employees. In
support of her motion, she cited the NLRC ruling. This Court applied Smith Bell and declared that
the final and executory NLRC decision to the effect that respondent spouses were not the
employees of petitioner is a ruling binding in the case for violation of the Social Security Act. The
Court further stated that the doctrine of conclusiveness of judgment also applies in criminal
cases.[27]
Applying the rule on res judicata by conclusiveness of judgment in conjunction with the
aforecited cases, the Court of Appeals aptly ruled, thus:
In SSC Case No. 9-15225-01, private respondent Angeles is seeking to
compel herein petitioners to remit to the Social Security System (SSS) all
contributions due for and in his behalf, whereas in NLRC NCR CA 018066-99 (NLRC
RAB-IV-5-9028-97 RI) private respondent prayed for the declaration of his dismissal
illegal. In SSC No. 9-15225-01, private respondent, in seeking to enforce his alleged
right to compulsory SSS coverage, alleged that he had been an employee of
petitioners; whereas to support his position in the labor case that he was illegally
dismissed by petitioners BSD Agro and/or Benjamin San Diego, he asserted that
there was an employer-employee relationship existing between him and petitioners
at the time of his dismissal in 1997. Simply stated, the issue common to both cases
is whether there existed an employer-employee relationship between private
respondent and petitioners at the time of the acts complaint of were committed both
in SSC Case No. 9-15225-01 and NLRC NCR CA 018066-99 (NLRC RAB-IV-59028-977-RI).

The issue of employer-employee relationship was laid to rest in CA GR. SP.

No. 55383, through this Courts Decision dated October 27, 2000 which has long
attained finality. Our affirmation of the NLRC decision of May 18, 1999 was an
adjudication on the merits of the case.
Considering the foregoing circumstances, the instant case falls squarely
under the umbrage of res judicata, particularly, under the rule on conclusiveness of
judgment. Following this rule, as enunciated in Smith Bell and Co. and Carriaga,
Jr. cases, We hold that the relief sought in SSC Case No. 9-15225-01 is inextricably
related to Our ruling in CA GR SP No. 55383 to the effect that private respondent
was not an employee of petitioners.[28]
The NLRC decision on the absence of employer-employee relationship being binding in the
SSC case, we affirm the dismissal by Court of Appeals of the SSC case.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals
Decision dated 20 September 2004, as well as its Resolution dated 9 February 2005,
is AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-28134 June 30, 1971

SOCIAL SECURITY SYSTEM, petitioner,
vs.
THE COURT OF APPEALS and THE PHILIPPINE GUARDS PROTECTION UNIT, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Pacifico P. de
Castro, Solicitor Antonio M. Martinez, Attorney Luz M. Villamor and Attorney Rafael M. Buag for
petitioner.
Alejandro P. Capitulo for private respondent.

VILLAMOR, J.:
This is an appeal by the Social Security System from the judgment of the Court of Appeals
declaring null and void the membership of private cases Philippine Guards Protection Unit in the
Social Security System from August 1, 1958 to June 17, 1960, pursuant to Republic Act No. 1161
(The Social security Act of 1954), as amended by Republic Act No. 1792 and accordingly
excluding it from compulsory coverage during that period; declaring the said private cases
a member of the Social Security System only as of June 18, 1960, pursuant Republic Act

No. 2658, which farther amended the said Section 9; and ordering the Social Security
System to refund to the said cases the contributions remitted by the latter to the System
corresponding to the first period mentioned.
The following proceedings gave rise to the present appeal:
On February 18, 1960, as a result of a letter sent by the Social Security System to the Philippine
Guards Protection Unit threatening it with court action if it did not continue to remit its contributions
to the System, the said protection unit, owned and operated by Clemente V. Eslao filed with the
Social Security Commission a petition for exclusion from coverage under the System and for a
refund its remittances for September and October 1958. The reason given by the unit is that it is
not subject to compulsory coverage under the Social Security Act of 1954, as amended by
Republic Act No. 1792, because it is not the employer, but merely the agent of the thirty-nine
security guards or watchmen whose names appear in its membership list, for, actually, it
has only one employee, namely, the clerk-secretary of the office. Under Section 9 of the
Social Security Act of 1954, as amended by Republic Act No. 1792, which work effect on June 21,
1957, "the Commission may not compel any employer to become a member of the System
unless he shall have been in operation for at least two years and has, at the time of
admission, if admitted for membership during the first year of the System's operation, at
least fifty employees and if admitted for membership in the following year of operation and
thereafter, at least six employees ...." After the issues had been joined and the case heard, the
Social Security Commission, on April 12, 1961, handed down a resolution finding the Philippine
Guards Protection Unit the employer of the security guards or watchmen, and accordingly
declaring the latter subject to compulsory coverage. A motion to reconsider was filed, but the same
was denied in an order of May 8, 1961. Hence, an appeal was interposed by the Philippine Guards
Portion Unit with the Court of Appeals, which reversed the resolution and order of the Commission
in a decision promulgated on July 24, 1967, the dispositive portion whereof is summarized in the
opening sentence of this Opinion.
We have noticed that although under the judgment of the Court of Appeals private respondent's
membership in the System as of June 18, 1960, has been expressly declared and recognized
pursuant to Section 9 of the Social Security Act of 1954, as amended by Republic Act No. 2658,
which eliminated among others, the requirement under Republic Act. No. 1792 that the employer
should have at least six employees for purposes of compulsory coverage, it is not clear from the
appealed decision if it is also the sense and intent of that court that the security guards or
watchmen in the roster of private respondent should, under Republic Act No. 2658, likewise not be
considered employees of the said respondent. As it now stands, the decision under review can be
interpreted to mean that private cases became a member of the system as of June 18, 1960,
when Republic Act No. 2658 took effect, because it had at least one employee, but that the
security guards or watchmen in its roster should not as under Republic Act No. 1792 be
considered private respondent's employees. To dispel any doubt and obviate further suits on the
matter, we hereby make it clear that the issue for resolution is whether or not for purposes of
social security coverage, the security guards or watchmen in question should be considered
private respondent's employee's not only under Republic Act No. 1792, but also under Republic
Act No. 2658.
The pertinent facts concerning the mechanics of the tripartite relationship among the Philippine
Guards Protection Unit, its clients and the security guards or watchmen, which were substantially
adopted by the Court of Appeals, are succinctly stated in the basic resolution of the Social Security
Commission, to wit:

... [W]henever a person approaches the owner of the agencies for employment, the
owner tells him to secure a license as a special watchman and in the meantime, the
owner would look for persons or establishments that need the service of a guard or
guards. If no such persons or establishments are found after the applicant has
secured a license, he remains with the agency as an "extra guard" and he is utilized
by the agency as a substitute for those guards going on vacation or for those who
are sick or otherwise absent (t.s.n., April 4, 1960, pp. 11-12). The owner may refuse
to accommodate an applicant if he so desires (t.s.n., April 28, 1960, pp. 6-7). When a
person or establishment requiring the service of a guard is found by the owner, a
contract is entered into between the owner of the agency and the client, either orally
or in writing (t.s.n., April 4, 1960, p. 17) The owner collects from the client the fee for
the service and from the amount received, the owner pays the salary of the guard,
retaining a part thereof for himself as his "commission" as long as the watchman is
assigned to guard the premises of a client (t.s.n., April 4, 1960, p. 18).
The owner of the agency furnishes the firearms and ammunitions, but the watchmen
buy their own uniforms (t.s.n., April 4, 1960, pp. 20, 21).
If a client is dissatisfied with the service of a guard, as when a guard is always late,
the agency may change the guard if the client so requests, or it may impose a fine
on the guard as a disciplinary measure (t.s.n., April 4, 1960, pp. 17-18).
The reasons of the Court of Appeals for concluding that there is no employer-employee
relationship between private cases and the security guards and watchmen may be summarized as
follows: (a) it is to the employing units or companies that the watchmen render their services,
hence, it is the former that are the employers of the watchmen, pursuant to Section 8 (c) of the
Act, which defines an employer as one who "uses the services of another person who is under his
orders as regards the employment," and to Section 8(d), which defines an employee as one
"who performs services for an employer in which either or both mental and physical efforts are
used and who receives compensation for such services where there is an employer-employee
relation." While the companies or units hand over the watchmen's compensation to private
respondent, which in turn pays the salaries of the watchmen after deducting a commission,
whatever right or interest private cases has in the said salaries is limited to receiving the same for,
in behalf of and in trust for the watchmen, subject to its right to deduct its commission for securing
work for them. (b) Since no service is rendered by the watchmen to private respondent, it follows
that in relation to their duties of guarding, watching and protecting the interests of the companies
or units, the watchmen receive no orders from private cases but from the said companies or units.
(c) It is the companies or units that hire or engage the watchmen, because without their asking for
the latter's services, the watchmen concerned cannot be employed in the said companies or units.
(d) The employing company or unit has the right to ask for a change or replacement or even to
terminate its agreement with private respondent. (e) The Supreme Court has in a number of
cases, recognized special watchmen as employees of the companies to which they are assigned;
and while those cases involve the interpretation of the Workers Compensation Act and not the
Social Security Act, the two laws being kindred legislations aimed at providing protection to the
employees against the hazards of disability, sickness and death it would not be improper to adopt
a uniform interpretation.
Several considerations constrain us to differ with the views expressed above, and the conclusion
arrived at, by cases Court of Appeals.
The Social Security Act of 1954, in its Section 8, contains, for purposes of social security
coverage, definitions of terms, among which are the following:

(c) Employer. Any person, natural or juridical, domestic or foreign, who carries on
in the Philippines any trade, business, industry, undertaking, or activity of any kind
and uses the services of another person who is under his orders as regards the
employment, except the Government and any of its political subdivisions, branches
or instrumentalities, including corporations owned or controlled by the Government.
(d) Employee. Any person who performs services for an "employer" in which
either or both mental and physical efforts are used and who receives compensation
for such services, where there is an employer-employee relationship.
Tested against the criteria in Section 8 (c) and (d) of the Act, Cases Philippine Guards Protection
unit must be considered an employer of the thirty-nine security guards or watchmen, and the latter
employees of said respondent. Private respondent carries on a business watchmen's service
from which it derives its income in the form of what it terms "commission". It uses the services of
other persons the guards or watchmen to carry on its business. Without them, cases would
not be in business, which consists solely in the letting out of watchmen's services for a fee. The
guards or watchmen render their services to private respondent by allowing themselves to be
assigned by said respondent, which, furnishes them arms and ammunition, guard and protect, the
properties and interests of private respondents clients, thus enabling that respondents to fulfill its
contractual obligation. Who the clients will be under what terms and conditions the services will be
rendered, are matters determined not by the guards or the watchmen, but not by private
respondents. On the other hand the client companies have no hand in selecting who among the
guards or watchmen shall be assigned to them. It is private respondents that issues assignment
orders and instruction and exercise control and supervision over the guard or watchmen, so much
so that if for one reason or another, the client is dissatisfied with a services of a particular guard
the client cannot himself terminate the services of a particular guard, but has to notify private
respondents, which either substitutes with another or metes out to him disciplinary measures. That
in the course of a watchman's assignment the client conceivably issues instruction to him, does
not in the least detract from the fact that private respondents is the said employer of the said
watchman, for in contemplation such instruction carry no more weight than mere request, the
privity of contract between the client and private respondents, not between the client, the
guardsman or watchman. Collolarily, such giving out of instructions inevitably spring from the
clients right predicated on the contract for services entered into by it with private respondents.
In the matter of compensation, there can be question to all the guards or watchmen receive
compensation from private respondents and not from private companies or establishments whose
premises they are guarding. The fee contracted to be paid by the client is admittedly not equal to
the salary of a guard or a watchman; such fee is arrived at independently of the salary to which the
guard or watchman is entitled under his arrangements with private respondent. All the fees
received by private respondent from its clients constitute, its gross income; and the salaries it pays
to the guards or watchmen and to its clerk-secretary, its ex for, say, office rent, light, water and
telephone services, licenses, firearms and ammunition, are expenses incurred in the operation of
the business. The net income or profit arrived at after deducting these expenses from the gross
income. Consequently, the term "commission" as applied to the difference between the fee
received from a client and the salary paid to a guard or watchman is a misnomer and its use by
private cases can alter the relationship of employer and employee between it and the guards or
watchmen.
In defining an employee, sanction 8(d) employs the phrase "who receives compensation for such
services, where is an employer-employee relationship." Considering our view that the guards or
watchmen included in its roster are private respondent's employees, and considering, further, that

private respondent is bona fide independent contractor, the client companies may not be deemed
employers of said guards or watchmen, pursuant to Section 8(j) (10), which reads:
Employees of bona fide independent contractors shall not be deemed employees of
the employer engaging the service of said contractors.
In Viana v. Al-Lagadan and Pica, 99 Phil., 408, 411-412, we said:
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal and (4) the power to
control the employee's conduct although the latter is the most important element
(35 AM. Jur. 445). ....
From our earlier discussion it can be seen that all the four elements enumerated
above are present to make out a relationship of employer and employee between
private cases and its thirty-nine security guards or watchmen.
The cases cited by respondent Court of Appeals, none of which, by the way, involves an
interpretation of the Social Security Act of 1954, are not applicable. Associated Watchmen and
Social Security Union (PTWO), et al. v. United States Lines, et al., 101 Phil., 896, involved a
determination of whether a labor dispute existed between the watchmen and the companies to
which they were assigned by the watchmen's agencies, and applied Section 2 of Republic Act No.
875 (The Industrial Peace Act), which defined a labor dispute as "any controversy concerning
terms, tenure ... regardless of whether the disputants stand in the proximate relation of employer
and employee." Maligaya Ship Watchmen Agency, et al. v. Associated Watchmen And Security
Union (PTWO), 103 Phil., 920, involved the determination of who among the members of
watchmen's agencies should be allowed to take part in certification elections; and we there held
that the watchmen who were actually guarding the ships and their cargo should be considered
laborers or employees of the shipping lines for purposes of the elections, in view, among others, of
the following considerations:
... [T]here never were contracts between the shipping lines and their agencies, on
the one hand, and the watchmen agencies-petitioners, on the other. The guarding of
each ship and its cargo was never the subject of a contract between one and the
other. The watchmen agencies never undertook for a specified sum the guarding of
the vessels and their cargo, were never paid therefor a lump sum without reference
to the number of watchmen performing the duties of guarding and the wages that
each should receive for his work. ....
The fact situation in the case is quite different from that in the present, for here there
is admittedly a contract entered into, other orally or in writing, between private
respondent and its client companies, and, precisely, the guarding of the companies'
premises and properties is the subject of the contracts. In the payment by the client
to private respondents of compensation, there is reference to the number of
watchmen but none to the wages each shall receive for his work.
In Nicolas, et al. v. Dacara, et al., 106 Phil., 934, the issue was whether a sum of money in the
hands of protective agency representing "salaries of guards employed by the different
companies affiliated with the detective and protective agency" could be garnished for the payment
of back wages judicially adjudicated in favor of other guards affiliated with the same protective
agency. We there held, citing Maligaya Ship Watchmen Agency, that since the money in question

secured by the sheriff represented wages due the guards "from companies that have employed
their services, that the said amount really and actually represents such wages," the same could
not be attached or garnished for the debts of the protective agency to the other guards. Again,
there is no similarity between that case and the present, for here the security guards or watchmen
receive their salaries not from the companies whose premises and properties they guard, but from
private respondent itself. In Compaia Maritima v. Cabagnot Vda. de Hio, et al. 107 Phil., 873, we
held that for purposes of workmen's compensation benefits, a watchman recruited by a protective
agency to guard the premises of a company should be considered an employee of said company
should be considered an employee of said company; but there "it was found by the (Workmen's
Compensation) Commission that the salary of the deceased was paid directly from the funds of
petitioner," the Compaia Maritima. It will be borne in mind, moreover, that in contradistinction with
Section 8(j) (10) of the Social Security Act of 1954 (quoted above), under Section 39 of the
Workmen's Compensation Act the term "employer" includes "the owner or lessee of a factory or
establishment or place of work or any other person who is virtually the owner or manager of the
business carried on in the establishment or place of work but who, for the reason that there is an
independent contractor in the same, or for any other reason, is not the direct employer of laborers
employed there."
There are practical considerations why private respondents Philippine Guards Protection Unit, and
not its clients, would be considered, for purposes of social security coverage, the employer of the
39 guards or watchmen listed in its roster (a) A watchman is not permanently assigned to a client;
for one reason or another he may be pulled out of a particular assignment and detailed to another
client. Consequently, different clients have to deduct premiums from different watchmen at
different times and remit them to the System together with the clients' own share of the premiums.
(b) Under the arrangements between private respondents and its the clients, the latter do not
determine how much salary is to be plaid to the watchmen. The clients merely pay to private
respondent the fee stipulated in their contracts. How, then, can a client deduct the premiums due
from a watchman? And how can it determine the amount of the watchman's premium as well as its
own? (c) Service performed by one person for another is not considered an employment if the
same is "purely casual and not for the purpose of occupation or business of the employer"
(Section 8[j][3], Social Security Act of 1954). Under private respondent's hypothesis, a watchman
may at times be considered an employee and at other times not, depending on whether or not he
happens to be assigned to a client which carries on a trade business, industry, undertaking or
activity of any kind (Section 8[c], supra). A fortiori, of private respondent's 39 watchmen, some
may be covered by the System's plan, while others not. To pursue the matter further, all the 39
watchmen may be covered sometimes, and not at other times. (d) If private respondent's clients
are considered the watchmen's employees, it may happen that the 39 different watchmen, have 39
different employers, which absurd, considering that all the watchmen are on the payroll and under
the supervision of only one entity.
PREMISES CONSIDERED, the judgment appealed from is reversed and set aside. Private
respondents membership in the Social Security System from August 1, 1958 up to the present is
declared valid and effective. Coverage in the System upon all its employees falling within the
required age level, including its security guards or watchmen, is hereby declared compulsory; and
private respondent is directed to pay or remit to petitioner all back premiums due. Costs against
private respondent.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo and
Makasiar, JJ., concur.
Castro, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21930

August 31, 1966

AGAPITA PAJARILLO, ET AL., petitioners-appellants,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.
Paulino Manongdo for petitioners-appellants.
Orlando L. Espinas for respondent-appellee.
BARRERA, J.:
This is an appeal by Agapita Pajarillo, et al., from the resolution of the Social Security
Commission, denying their petition to be exempted from coverage of the Social Security
System.
There is no controversy as to the facts of this case. Appellants are owners of fishing boats being
used for fishing at sea, namely:
Owner

Name of Vessel

Agapita Pajarillo

Bagong Kalayaan

Basilio Medina

Stella Maris

Rosario Relloso

Villa Florida

Teofila Campana

Salenian

Melicia Totanes

Nazareno

Melicia Totanes

San Pedro

Ireneo Racelis

Ricardo

Salvador Boral

Villa Rosario

Cesar King

Felipa

Ramon King

Tacia

Jaime King

Aday

Amelia Reyes

Queen Mary

Amelia Reyes

Nanay

Teofilo Nasis

Teresita

Rosario Reyes

Charing Uno

Rosario Reyes

Charing Dos

Aurora Sales

Aurora

As such property-owners, they enter into agreement 1 with the so-called patrons or pilots, whereby
the latter take charge of appellants fishing vessels, equipment, and gear used for fishing. Once
entrusted with the equipment, the pilot "hires" the crew to man the boat and secures their
provisions. This is usually financed from loans obtained in the form of advances from fish dealers,
and payable in kind when the boat returns with catch from the fishing trip. (pp. 23-24, t.s.n.).
These fishing trips are not regular. The fishermen go out to the sea only when there is no moon or
it is not yet very bright. For this reason, even in months of fine weather, the most that a boat can
make are 18 fishing days every month. These men have no regular income. If the trip yields a
catch, the proceeds thereof are divided into three parts: one part goes to the owner of the
boat and equipment; one part is set aside to cover expenses like crude oil and for
maintenance of the boat, and the other one-third is divided among the men, with the pilot
getting 3 times the share of a crew-member; and the "machinist", who tends or operates
the engine of the motorized boat, receiving twice the share of a crew-member. (pp. 9, 23,
t.s.n.).
The men (usually 12 for every vessel, including the pilot) are under no obligation to stay in one
outfit. Sometimes, they join as members of the crew for one night only; sometimes two, or three
days. Then, they leave and join other outfits. (pp. 18-19, t.s.n.). Even the pilot himself is not bound
to retain his charge for any definite duration. He can return the boat to its owner anytime, if he
does not want to manage it anymore. (p. 11, t.s.n.). The vessel-owners, appellants in the present
case, required to register as employers with the Social Security System, filed a joint petition with
the Social Security Commission, claiming that there exists no employer-employee relationship
between them and the crew of their fishing vessels, and praying that they be exempted from the
compulsory coverage of the law. After hearing, their petition was denied, the Commission holding
that while the services of the crew-members are engaged by the pilots, the latter are mere
employees or agents of the boat-owners. Thus, it is contended, a boat-owner can abolish the
employment of the crew-members by withdrawing from the pilot the authority to take charge of the
vessel. Appellants, consequently, were directed to report their coverage and that of their
respective pilots and crew-members to the Commission and to pay the prescribed premiums
pursuant to Sections 18, 19 and 20 of the Republic Act 1161, as amended. The boat-owners filed
the present appeal.
The only issue raised before the Commission and presented in this appeal is, as stated by the
Commission itself, "whether under the facts set forth above, there exists an employeremployee relationship between the petitioners and the crew-members of their respective
fishing boats within the meaning of Republic Act 1161, as amended.
Under the law, an employer is a "person, natural or juridical, domestic or foreign, who carries on
in the Philippines any trade, business, industry, undertaking, or activity of any kind and uses the
services of another person who is under his orders as regards the employment. " 2 In the case at
bar, the pilots are not under the orders of the boat-owners as regards their employment.
They go out to sea not upon direction of the boat-owners, but upon their own volition as to
when, how long and where to go fishing. Much less do the boat-owners in any way control
the crew-members with whom the former have no relationship whatsoever. These crewmembers simply join every trip for which the pilots allow them, without any reference to the
owners of the vessel.
On the other hand, an employee is defined as a "person who performs services for an
'employer' in which either or both mental and physical efforts are used and who receives
compensation for such services, where there is an employer-employee relationship."3 In the
present case, neither the pilots nor the crew-members receive compensation from the boatowners. They only share in their own catch produced by their own efforts. There is no
showing that outside of their one-third share, the boat-owners have anything to do with the

distribution of the rest of the catch among the pilots and the crew-members. The latter
perform no service for the boat-owners, but mainly for their own benefit.
In the undertaking in question, the boat-owners obviously are not responsible for the wage,
salary, or fee of the pilot and crew-members. Their sole participation in the venture is the
furnishing or delivery of the equipment used for fishing, after which, they merely wait for the boat's
return and receive their share in the catch, if there is any. For this part, a person who joins the
outfit is entitled to a share or participation in the fruit of the fishing trip. If it gives no return, the men
get nothing. It appears to us, therefore, that the undertaking is in the nature of a joint venture,
with the boat-owner supplying the boat and its equipments, and the pilot and crewmembers contributing the necessary labor, and the parties getting specific shares for their
respective contributions.
But, even assuming arguendo that the pilot and crew-members may be treated as employees of
the boat-owners, they cannot also be made subject to compulsory coverage under the
Social Security Act. As previously stated, the men are under no obligation to remain in the
outfit for any definite period. Thus, one can be the crew-member of an outfit for one day
and be the member of the crew of another vessel the next day. Also, a fishing boat has no
regular schedule of fishing trips. It all depends on the weather and other natural conditions,
and the volition of the pilots and crew-men themselves. And, even when a fishing trip is
completed, it is no assurance of income for the fishermen and the boat-owner as well.
Clearly, the services rendered by the fishermen are no different from the agricultural labor
performed by a share or leasehold tenant or worker, which is specifically excluded from the
definition of "employment",4 and exempted from the coverage of the Social Security Act.
Add to this the extreme difficulty, if not impossibility, of determining the monthly wage of earning of
these fishermen for the purpose of fixing the amount of their and the supposed employer's
contributions,5 and there is even reason to exempt the parties to this kind of undertaking from
compulsory registration with the Social security System.
In view of the foregoing considerations, the resolution of the Social Security Commission appealed
from is hereby set aside, and petitioners-appellants are declared exempted from compulsory
coverage of the Social Security law. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar Sanchez and Castro,
JJ., concur.
Regala, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114733 January 2, 1997

AURORA LAND PROJECTS CORP. Doing business under the name "AURORA PLAZA" and
TERESITA T. QUAZON, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and HONORIO DAGUI, respondents.

HERMOSISIMA, JR., J.:

The question as to whether an employer-employee relationship exists in a certain situation
continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employeremployee relationship in their enterprises because that judicial relation spawns obligations
connected with workmen's compensation, social security, medicare, minimum wage, termination
pay, and unionism. 1 In light of this observation, it behooves this Court to be ever vigilant in
Checking the unscrupulous efforts of some of our entrepreneurs, primarily aimed at maximizing
their return on investments at the expense of the lowly workingman.
This petition for certiorari seeks the reversal of the Resolution 2 of public respondent National
Labor Relations Commission dated March 16, 1994 affirming with modification the decision of the
Labor Arbiter, dated May 25, 1992, finding petitioners liable to pay private respondent the total
amount of P195,624.00 as separation pay and attorney's fees.
The relevant antecedents:
Private respondent Honorio Dagui was hired by Doa Aurora Suntay Tanjangco in 1953 to take
charge of the maintenance and repair of the Tanjangco apartments and residential buildings. He
was to perform carpentry, plumbing, electrical and masonry work. Upon the death of Doa Aurora
Tanjangco in 1982, her daughter, petitioner Teresita Tanjangco Quazon, took over the
administration of all the Tanjangco properties. On June 8, 1991, private respondent Dagui received
the shock of his life when Mrs. Quazon suddenly told him: "Wala ka nang trabaho mula
ngayon," 3 on the alleged ground that his work was unsatisfactory. On August 29, 1991, private
respondent, who was then already sixty-two (62) years old, filed a complaint for illegal dismissal
with the Labor Arbiter.
On May 25, 1992, Labor Arbiter Ricardo C. Nora rendered judgment, the decretal portion of which
reads:
IN VIEW OF ALL THE FOREGOING, respondents Aurora Plaza and/or Teresita Tanjangco
Quazon are hereby ordered to pay the complainant the total amount of ONE HUNDRED
NINETY FIVE THOUSAND SIX HUNDRED TWENTY FOUR PESOS (P195,624.00)
representing complainant's separation pay and the ten (10%) percent attorney's fees within
ten (10) days from receipt of this Decision.
All other issues are dismissed for lack of merit. 4
Aggrieved, petitioners Aurora Land Projects Corporation and Teresita T. Quazon appealed to the
National Labor Relations Commission. The Commission affirmed, with modification, the Labor
Arbiter's decision in a Resolution promulgated on March 16, 1994, in the following manner:
WHEREFORE, in view of the above considerations, let the appealed decision be as it is
hereby AFFIRMED with (the) MODIFICATION that complainant must be paid separation
pay in the amount of P88,920.00 instead of P177,840.00. The award of attorney's fees is
hereby deleted. 5
As a last recourse, petitioners filed the instant petition based on grounds not otherwise succinctly
and distinctly ascribed, viz:

I
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN AFFIRMING THE LABOR ARBITER'S
DECISION SOLELY ON THE BASIS OF ITS STATEMENT THAT "WE FAIL TO FIND ANY
REASON OR JUSTIFICATION TO DISAGREE WITH THE LABOR ARBITER IN HIS
FINDING THAT HONORIO DAGUI WAS DISMISSED BY THE RESPONDENT" (p. 7,
RESOLUTION), DESPITE AND WITHOUT EVEN BOTHERING TO CONSIDER THE
GROUNDS STATED IN PETITIONERS' APPEAL MEMORANDUM WHICH ARE PLAINLY
MERITORIOUS.
II
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN FINDING THAT COMPLAINANT WAS
EMPLOYED BY THE RESPONDENTS MORE SO "FROM 1953 TO 1991" (p. 3,
RESOLUTION).
III
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN AWARDING SEPARATION PAY IN FAVOR OF
PRIVATE RESPONDENT MORE SO FOR THE EQUIVALENT OF 38 YEARS OF
ALLEGED SERVICE.
IV
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN HOLDING BOTH PETITIONERS LIABLE FOR
SEPARATION PAY. 6
It is our impression that the crux of this petition rests on two elemental issues: (1) Whether or not
private respondent Honorio Dagui was an employee of petitioners; and (2) If he were, whether or
not he was illegally dismissed.
Petitioners insist that private respondent had never been their employee. Since the establishment
of Aurora Plaza, Dagui served therein only as a job contractor. Dagui had control and supervision
of whoever he would take to perform a contracted job. On occasion, Dagui was hired only as a
"tubero" or plumber as the need arises in order to unclog sewerage pipes. Every time his services
were needed, he was paid accordingly. It was understood that his job was limited to the specific
undertaking of unclogging the pipes. In effect, petitioners would like us to believe that private
respondent Dagui was an independent contractor, particularly a job contractor, and not an
employee of Aurora Plaza.
We are not persuaded.
Section 8, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code
provides in part:
There is job contracting permissible under the Code if the following conditions are met:
xxx xxx xxx

(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
Honorio Dagui earns a measly sum of P180.00 a day (latest salary). 7 Ostensibly, and by no stretch
of the imagination can Dagui qualify as a job contractor. No proof was adduced by the petitioners
to show that Dagui was merely a job contractor, and it is absurd to expect that private respondent,
with such humble resources, would have substantial capital or investment in the form of tools,
equipment, and machineries, with which to conduct the business of supplying Aurora Plaza with
manpower and services for the exclusive purpose of maintaining the apartment houses owned by
the petitioners herein.
The bare allegation of petitioners, without more, that private respondent Dagui is a job contractor
has been disbelieved by the Labor Arbiter and the public respondent NLRC. Dagui, by the findings
of both tribunals, was an employee of the petitioners. We are not inclined to set aside these
findings. The issue whether or not an employer-employee relationship exists in a given case is
essentially a question of fact. 8 As a rule, repetitious though it has become to state, this Court does
not review supposed errors in the decision of the NLRC which raise factual issues, because
factual findings of agencies exercising quasi-judicial functions [like public respondent NLRC] are
accorded not only respect but even finality, aside from the consideration that this Court is
essentially not a trier of facts. 9
However, we deem it wise to discuss this issue full-length if only to bolster the conclusions
reached by the labor tribunals, to which we fully concur.
Jurisprudence is firmly settled that whenever the existence of an employment relationship is in
dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to
control the employee's conduct. 10 It is the so-called "control test," and that is, whether the
employer controls or has reserved the right to control the employee not only as to the result of the
work to be done but also as to the means and methods by which the same is to be
accomplished, 11which constitute the most important index of the existence of the employeremployee relationship. Stated otherwise, an employer-employee relationship exists where the
person for whom the services are performed reserves the right to control not only the end to be
achieved but also the means to be used in reaching such end. 12
All these elements are present in the case at bar. Private respondent was hired in 1953 by Doa
Aurora Suntay Tanjangco (mother of Teresita Tanjangco-Quazon), who was then the one in charge
of the administration of the Tanjangco's various apartments and other properties. He was
employed as a stay-in worker performing carpentry, plumbing, electrical and necessary work (sic)
needed in the repairs of Tanjangco's properties. 13 Upon the demise of Doa Aurora in 1982,
petitioner Teresita Tanjangco-Quazon took over the administration of these properties and
continued to employ the private respondent, until his unceremonious dismissal on June 8, 1991. 14
Dagui was not compensated in terms of profits for his labor or services like an independent
contractor. Rather, he was paid on a daily wage basis at the rate of P180.00. 15 Employees are
those who are compensated for their labor or services by wages rather than by profits. 16 Clearly,
Dagui fits under this classification.
Doa Aurora and later her daughter petitioner Teresita Quazon evidently had the power of
dismissal for cause over the private respondent. 17

Finally, the records unmistakably show that the most important requisite of control is likewise
extant in this case. It should be borne in mind that the power of control refers merely to the
existence of the power and not 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 former has a
right to wield the power. 18 The establishment of petitioners is engaged in the leasing of residential
and apartment buildings. Naturally, private respondent's work therein as a maintenance man had
to be performed within the premises of herein petitioners. In fact, petitioners do not dispute the fact
that Dagui reports for work from 7:00 o'clock in the morning until 4:00 o'clock in the afternoon. It is
not far-fetched to expect, therefore, that Dagui had to observe the instructions and specifications
given by then Doa Aurora and later by Mrs. Teresita Quazon as to how his work had to be
performed. Parenthetically, since the job of a maintenance crew is necessarily done within
company premises, it can be inferred that both Doa Aurora and Mrs. Quazon could easily
exercise control on private respondent whenever they please.
The employment relationship established, the next question would have to be: What kind of an
employee is the private respondent regular, casual or probationary?
We find private respondent to be a regular employee, for Article 280 of the Labor Code provides:
Regular and Casual employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer,
except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the engagement of
the employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee with
respect to the activity in which he is employed and his employment shall continue while
such actually exists.
As can be gleaned from this provision, there are two kinds of regular employees, namely: (1) those
who are engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer; and (2) those who have rendered at least one year of service,
whether continuous or broken, with respect to the activity in which they are employed. 19
Whichever standard is applied, private respondent qualifies as a regular employee. As aptly ruled
by the Labor Arbiter:
. . . As owner of many residential and apartment buildings in Metro Manila, the necessity of
maintaining and employing a permanent stay-in worker to perform carpentry, plumbing,
electrical and necessary work needed in the repairs of Tanjangco's properties is readily
apparent and is in fact needed. So much so that upon the demise of Doa Aurora
Tanjangco, respondent's daughter Teresita Tanjangco-Quazon apparently took over the
administration of the properties and continued to employ complainant until his outright
dismissal on June 8, 1991. . . . 20
The jobs assigned to private respondent as maintenance man, carpenter, plumber, electrician and
mason were directly related to the business of petitioners as lessors of residential and apartment

buildings. Moreover, such a continuing need for his services by herein petitioners is sufficient
evidence of the necessity and indispensability of his services to petitioners' business or trade.
Private respondent Dagui should likewise be considered a regular employee by the mere fact that
he rendered service for the Tanjangcos for more than one year, that is, beginning 1953 until 1982,
under Doa Aurora; and then from 1982 up to June 8, 1991 under the petitioners, for a total of
twenty-nine (29) and nine (9) years respectively. Owing to private respondent's length of service,
he became a regular employee, by operation of law, one year after he was employed in 1953 and
subsequently in 1982. In Baguio Country Club Corp., v. NLRC, 21 we decided that it is more in
consonance with the intent and spirit of the law to rule that the status of regular employment
attaches to the casual employee on the day immediately after the end of his first year of service.
To rule otherwise is to impose a burden on the employee which is not sanctioned by law. Thus, the
law does not provide the qualification that the employee must first be issued a regular appointment
or must first be formally declared as such before he can acquire a regular status.
Petitioners argue, however, that even assuming arguendo that private respondent can be
considered an employee, he cannot be classified as a regular employee. He was merely a project
employee whose services were hired only with respect to a specific job and only while the same
exists, 22 thus falling under the exception of Article 280, paragraph 1 of the Labor Code. Hence, it is
claimed that he is not entitled to the benefits prayed for and subsequently awarded by the Labor
Arbiter as modified by public respondent NLRC.
The circumstances of this case in light of settled case law do not, at all, support this averment.
Consonant with a string of cases beginning with Ochoco v. NLRC, 23 followed by Philippine
National Construction Corporation v. NLRC, 24Magante v. NLRC, 25 and Capitol Industrial
Construction Corporation v. NLRC, 26 if truly, private respondent was employed as a "project
employee," petitioners should have submitted a report of termination to the nearest public
employment office everytime his employment is terminated due to completion of each project, as
required by Policy Instruction No. 20, which provides:
Project employees are not entitled to termination pay if they are terminated as a result of
the completion of the project or any phase thereof in which they are employed, regardless
of the number of project in which they have been employed by a particular construction
company. Moreover, the company is not required to obtain a clearance from the Secretary
of Labor in connection with such termination. What is required of the company is a report to
the nearest Public Employment Office for statistical purposes.
Throughout the duration of private respondent's employment as maintenance man, there should
have been filed as many reports of termination as there were projects actually finished, if it were
true that private respondent was only a project worker. Failure of the petitioners to comply with this
simple, but nonetheless compulsory, requirement is proof that Dagui is not a project employee. 27
Coming now to the second issue as to whether or not private respondent Dagui was illegally
dismissed, we rule in the affirmative.
Jurisprudence abound as to the rule that the twin requirements of due process, substantive and
procedural, must be complied with, before a valid dismissal exists. 28 Without which the dismissal
becomes void. 29
The twin requirements of notice and hearing constitute the essential elements of due process. This
simply means that the employer shall afford the worker ample opportunity to be beard and to

defend himself with the assistance of his representative, if he so desires. 30 As held in the case
of Pepsi Cola Bottling Co. v. NLRC: 31
The law requires that the employer must furnish the worker sought to be dismissed with two
written notices before termination of employee can be legally effected: (1) notice which
apprises the employee of the particular acts or omissions for which his dismissal is sought;
and (2) the subsequent notice which informs the employee of the employer's decision to
dismiss him (Section 13, BP 130; Sections, 2-6, Rule XIV, Book V Rules and Regulations
Implementing the Labor Code as amended), Failure to comply with the requirements taints
the dismissal with illegality. This procedure is mandatory; in the absence of which, any
judgment reached by management is void and inexistent. (Tingson, Jr. v. NLRC, 185 SCRA
498 [1990]; National Service Corporation v. NLRC, 168 SCRA 122 [1988]; Ruffy v. NLRC,
182 SCRA 365 [1990].
These mandatory requirements were undeniably absent in the case at bar. Petitioner Quazon
dismissed private respondent on June 8, 1991, without giving him any written notice informing the
worker herein of the cause for his termination. Neither was there any hearing conducted in order to
give Dagui the opportunity to be heard and defend himself. He was simply told: "Wala ka nang
trabaho mula ngayon," allegedly because of poor workmanship on a previous job. 32 The
undignified manner by which private respondent's services were terminated smacks of absolute
denial of the employee's right to due process and betrays petitioner Quazon's utter lack of respect
for labor. Such an attitude indeed deserves condemnation.
The Court, however, is bewildered why only an award for separation pay in lieu of reinstatement
was made by both the Labor Arbiter and the NLRC. No backwages were awarded. It must be
remembered that backwages and reinstatement are two reliefs that should be given to an illegally
dismissed employee. They are separate and distinct from each other. In the event that
reinstatement is no longer possible, as in this case, 33 separation pay is awarded to the employee.
The award of separation pay is in lieu of reinstatement and not of backwages. In other words, an
illegally dismissed employee is entitled to (1) either reinstatement, if viable, or separation pay if
reinstatement is no longer viable, and (2) backwages. 34 Payment of backwages is specifically
designed to restore an employee's income that was lost because of his unjust dismissal. 35 On the
other hand, payment of separation pay is intended to provide the employee money during the
period in which he will be looking for another employment. 36
Considering, however, that the termination of private respondent Dagui was made on June 8, 1991
or after the effectivity of the amendatory provision of Republic Act No. 6715 on March 21, 1989,
private respondent's backwages should be computed on the basis of said law.
It is true that private respondent did not appeal the award of the Labor Arbiter awarding separation
pay sansbackwages. While as a general rule, a party who has not appealed is not entitled to
affirmative relief other than the ones granted in the decision of the court below, 37 law and
jurisprudence authorize a tribunal to consider errors, although unassigned, if they involve (1)
errors affecting the lower court's jurisdiction over the subject matter, (2) plain errors not specified,
and (3) clerical errors. 38 In this case, the failure of the Labor Arbiter and the public respondent
NLRC to award backwages to the private respondent, who is legally entitled thereto having been
illegally dismissed, amounts to a "plain error" which we may rectify in this petition, although private
respondent Dagui did not bring any appeal regarding the matter, in the interest of substantial
justice. The Supreme Court is clothed with ample authority to review matters, even if they are not
assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just
decision of the case. 39Rules of procedure are mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate

rather than promote substantial justice, must always be avoided. 40 Thus, substantive rights like the
award of backwages resulting from illegal dismissal must not be prejudiced by a rigid and technical
application of the rules. 41
Petitioner Quazon argues that, granting the petitioner corporation should be held liable for the
claims of private respondent, she cannot be made jointly and severally liable with the corporation,
notwithstanding the fact that she is the highest ranking officer of the company, since Aurora Plaza
has a separate juridical personality.
We disagree.
In the cases of Maglutac v. National Labor Relations Commission, 42 Chua v. National Labor
Relations Commission, 43and A.C. Ransom Labor Union-CCLU v. National Labor Relations
Commission 44 we were consistent in holding that the highest and most ranking officer of the
corporation, which in this case is petitioner Teresita Quazon as manager of Aurora Land Projects
Corporation, can be held jointly and severally liable with the corporation for the payment of the
unpaid money claims of its employees who were illegally dismissed. In this case, not only was
Teresita Quazon the most ranking officer of Aurora Plaza at the time of the termination of the
private respondent, but worse, she had a direct hand in the private respondent's illegal dismissal.
A corporate officer is not personally liable for the money claims of discharged corporate
employees unless he acted with evident malice and bad faith in terminating their
employment. 45 Here, the failure of petitioner Quazon to observe the mandatory requirements of
due process in terminating the services of Dagui evinced malice and bad faith on her part, thus
making her liable.
Finally, we must address one last point. Petitioners aver that, assuming that private respondent
can be considered an employee of Aurora Plaza, petitioners cannot be held liable for separation
pay for the duration of his employment with Doa Aurora Tanjangco from 1953 up to 1982. If
petitioners should be held liable as employers, their liability for separation pay should only be
counted from the time Dagui was rehired by the petitioners in 1982 as a maintenance man.
We agree.
Petitioners' liability for separation pay ought to be reckoned from 1982 when petitioner Teresita
Quazon, as manager of Aurora Plaza, continued to employ private respondent. From 1953 up to
the death of Doa Aurora sometime in 1982, private respondent's claim for separation pay should
have been filed in the testate or intestate proceedings of Doa Aurora. This is because the
demand for separation pay covered by the years 1953-1982 is actually a money claim against the
estate of Doa Aurora, which claim did not survive the death of the old woman. Thus, it must be
filed against her estate in accordance with Section 5, Rule 86 of the Revised Rules of Court, to wit:
Sec. 5. Claims which must be filed under tire notice. If not filed, barred; exceptions. All
claims for money against the decedent, arising from contract, express or implied, whether
the same be due, not due, or contingent, all claims for funeral expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed
within the time limited in the notice; otherwise they are barred forever, except that they may
be set forth as counterclaims in any action that the executor or administrator may bring
against the claimants. . . .
WHEREFORE, the instant petition is partly GRANTED and the Resolution of the public
respondent National Labor Relations Commission dated March 16, 1994 is hereby MODIFIED in
that the award of separation pay against the petitioners shall be reckoned from the date private

respondent was re-employed by the petitioners in 1982, until June 8, 1991. In addition to
separation pay, full backwages are likewise awarded to private respondent, inclusive of
allowances, and other benefits or their monetary equivalent pursuant to Article 279 46 of the Labor
Code, as amended by Section 34 of Republic Act No. 6715, computed from the time he was
dismissed on June 8, 1991 up to the finality of this decision, without deducting therefrom the
earnings derived by private respondent elsewhere during the period of his illegal dismissal,
pursuant to our ruling in Osmalik Bustamante, et al. v. National Labor Relations Commission. 47
No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

THIRD DIVISION
REPUBLIC OF THE
PHILIPPINES,
represented
by
the
SOCIAL
SECURITY
COMMISSION
and
SOCIAL
SECURITY
SYSTEM,
Pe
titioners,

- versus -

G.R. No. 172101

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
AZCUNA,
CHICO-NAZARIO, and
REYES, JJ.
Promulgated:
November 23, 2007

ASIAPRO
COOPERATIVE,
Resp
ondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision [1] and Resolution[2] of the
Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, which annulled and set aside the Orders of the Social Security Commission (SSC) in
SSC Case No. 6-15507-03, dated 17 February 2004 [3] and 16 September 2004,[4] respectively,
thereby dismissing the petition-complaint dated 12 June 2003 filed by herein petitioner Social
Security System (SSS) against herein respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial
body authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by
Republic Act No. 8282.[5] Petitioner SSS is a government corporation created by virtue of Republic
Act No. 1161, as amended. On the other hand, herein respondent Asiapro Cooperative (Asiapro)
is a multi-purpose cooperative created pursuant to Republic Act No. 6938 [6] and duly registered
with the Cooperative Development Authority (CDA) on 23 November 1999 with Registration
Certificate No. 0-623-2460.[7]
The antecedents of this case are as follows:
Respondent Asiapro, as a cooperative, is composed of owners-members. Under its bylaws, owners-members 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. [8] 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 [9] 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[10] 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 ownersmembers 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 [11] 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 ownersmembers 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,
[12]
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,[13] 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 [14] 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. 6-15507-03. 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.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed
by the respondent cooperative. The respondent cooperative moved for the reconsideration of the
said Order, but it was likewise denied in another Order issued by the SSC dated 16 September
2004.
Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension
of Time to File a Petition for Review before the Court of Appeals. Subsequently, respondent
cooperative filed a Manifestation stating that it was no longer filing a Petition for Review. In its
place, respondent cooperative filed a Petition forCertiorari before the Court of Appeals, docketed
as CA-G.R. SP No. 87236, with the following assignment of errors:
I.
The Orders dated 17 February 2004 and 16 September
2004 of [herein petitioner] SSC were issued with grave abuse of discretion
amounting to a (sic) lack or excess of jurisdiction in that:

A.

B.

C.

II.

[Petitioner] SSC arbitrarily proceeded with the case as if it

has jurisdiction over the petition a quo, considering that it failed
to first resolve the issue of the existence of an employeremployee relationship between [respondent] cooperative and its
owners-members.
While indeed, the [petitioner] SSC has jurisdiction over all
disputes arising under the SSS Law with respect to coverage,
benefits, contributions, and related matters, it is respectfully
submitted that [petitioner] SSC may only assume jurisdiction in
cases where there is no dispute as to the existence of an
employer-employee relationship.
Contrary to the holding of the [petitioner] SSC, the legal
issue of employer-employee relationship raised in [respondents]
Motion to Dismiss can be preliminarily resolved through
summary hearings prior to the hearing on the merits. However,
any inquiry beyond a preliminary determination, as what
[petitioner SSC] wants to accomplish, would be to encroach on
the jurisdiction of the National Labor Relations Commission
[NLRC], which is the more competent body clothed with power
to resolve issues relating to the existence of an employment
relationship.

At any rate, the [petitioner] SSC has no jurisdiction to

take cognizance of the petition a quo.
A.

B.

C.

[Respondent] is not an employer within the contemplation

of the Labor Law but is a multi-purpose cooperative created
pursuant to Republic Act No. 6938 and composed of ownersmembers, not employees.
The rights and obligations of the owners-members of
[respondent] cooperative are derived from their Membership
Agreements, the Cooperatives By-Laws, and Republic Act No.
6938, and not from any contract of employment or from the
Labor Laws. Moreover, said owners-members enjoy rights that
are not consistent with being mere employees of a company,
such as the right to participate and vote in decision-making for
the cooperative.
As found by the Bureau of Internal Revenue [BIR], the
owners-members of [respondent] cooperative are not paid any
compensation income.[15] (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by
the respondent cooperative. The decretal portion of the Decision reads:
WHEREFORE, the petition is GRANTED. The assailed Orders dated [17
February 2004] and [16 September 2004], are ANNULLED and SET ASIDE and a
new one is enteredDISMISSING the petition-complaint dated [12 June 2003] of
[herein petitioner] Social Security System. [16]
Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was
denied by the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals
erred in not finding that the SSC has jurisdiction over the subject matter and it has a valid
basis in denying respondents Motion to Dismiss. The said issue is supported by the following
arguments:
I.
II.

The [petitioner SSC] has jurisdiction over the petitioncomplaint filed before it by the [petitioner SSS] under R.A. No. 8282.
Respondent [cooperative] is estopped from questioning the
jurisdiction of petitioner SSC after invoking its jurisdiction by filing an
[A]nswer with [M]otion to [D]ismiss before it.

III.

The [petitioner SSC] did not act with grave abuse of

discretion in denying respondent [cooperatives] [M]otion to [D]ismiss.

IV.

The existence of an employer-employee relationship is a

question of fact where presentation of evidence is necessary.

V.

There is an employer-employee relationship between

[respondent cooperative] and its [owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS as it involved an issue of whether or not a worker is entitled to compulsory
coverage under the SSS Law. Petitioners avow that Section 5 of Republic Act No. 1161, as
amended by Republic Act No. 8282, expressly confers upon petitioner SSC the power to settle
disputes on compulsory coverage, benefits, contributions and penalties thereon or any other
matter related thereto. Likewise, Section 9 of the same law clearly provides that SSS coverage is
compulsory upon all employees. Thus, when petitioner SSS filed a petition-complaint against the
respondent cooperative and Stanfilco before the petitioner SSC for the compulsory coverage of
respondent cooperatives owners-members as well as for collection of unpaid SSS contributions, it
was very obvious that the subject matter of the aforesaid petition-complaint was within the
expertise and jurisdiction of the SSC.
Petitioners similarly assert that granting arguendo that there is a prior need to determine the
existence of an employer-employee relationship between the respondent cooperative and its
owners-members, said issue does not preclude petitioner SSC from taking cognizance of the
aforesaid petition-complaint. Considering that the principal relief sought in the said petitioncomplaint has to be resolved by reference to the Social Security Law and not to the Labor Code or
other labor relations statutes, therefore, jurisdiction over the same solely belongs to petitioner
SSC.

Petitioners further claim that the denial of the respondent cooperatives Motion to Dismiss
grounded on the alleged lack of employer-employee relationship does not constitute grave abuse
of discretion on the part of petitioner SSC because the latter has the authority and power to deny
the same. Moreover, the existence of an employer-employee relationship is a question of fact
where presentation of evidence is necessary. Petitioners also maintain that the respondent
cooperative is already estopped from assailing the jurisdiction of the petitioner SSC because it has
already filed its Answer before it, thus, respondent cooperative has already submitted itself to the
jurisdiction of the petitioner SSC.
Finally, petitioners contend that there is an employer-employee relationship between the
respondent cooperative and its owners-members. The respondent cooperative is the employer of
its owners-members considering that it undertook to provide services to Stanfilco, the performance
of which is under the full and sole control of the respondent cooperative.
On the other hand, respondent cooperative alleges that its owners-members own the
cooperative, thus, no employer-employee relationship can arise between them. The persons of
the employer and the employee are merged in the owners-members themselves. Likewise,
respondent cooperatives owners-members even requested the respondent cooperative to register
them with the petitioner SSS as self-employed individuals. Hence, petitioner SSC has no
jurisdiction over the petition-complaint filed before it by petitioner SSS.
Respondent cooperative further avers that the Court of Appeals correctly ruled that
petitioner SSC acted with grave abuse of discretion when it assumed jurisdiction over the petitioncomplaint without determining first if there was an employer-employee relationship between the
respondent cooperative and its owners-members. Respondent cooperative claims that the
question of whether an employer-employee relationship exists between it and its owners-members
is a legal and not a factual issue as the facts are undisputed and need only to be interpreted by
the applicable law and jurisprudence.
Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing
the jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss,
especially where the issue of jurisdiction is raised at the very first instance and where the only
relief being sought is the dismissal of the petition-complaint for lack of jurisdiction.
From the foregoing arguments of the parties, the issues may be summarized into:
I.

II.

Whether the petitioner SSC has jurisdiction over the

petition-complaint filed before it by petitioner SSS against the
respondent cooperative.
Whether the respondent cooperative is estopped from
assailing the jurisdiction of petitioner SSC since it had already filed an
Answer with Motion to Dismiss before the said body.

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
employer-employee relationship[17] 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.
[18]
Moreover, it is well-settled that once jurisdiction is acquired by the court, it remains with it until
the full termination of the case.[19] 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 petitioncomplaint 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 x.
xxxx
6. Except claims for Employees Compensation, Social Security,
Medicare and maternity benefits, all other claims, arising from employeremployee 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. [20]

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. [21]
Even before the petitioner SSC could make a determination of the existence of an
employer-employee relationship, however, the respondent cooperative already elevated the Order
of the petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by filing a Petition

for Certiorari. As a consequence thereof, the petitioner SSC became a party to the said Petition
for Certiorari pursuant to Section 5(b)[22] of Republic Act No. 8282. The appellate court ruled in
favor of the respondent cooperative by declaring that the petitioner SSC has no jurisdiction over
the petition-complaint filed before it because there was no employer-employee relationship
between the respondent cooperative and its owners-members. Resultantly, the petitioners SSS
and SSC, representing the Republic of the Philippines, filed a Petition for Review before this
Court.
Although as a rule, in the exercise of the Supreme Courts power of review, the Court is not
a trier of facts and the findings of fact of the Court of Appeals are conclusive and binding on the
Court,[23] said rule is not without exceptions. There are several recognized exceptions[24] in which
factual issues may be resolved by this Court. One of these exceptions finds application in this
present case which is, when the findings of fact are conflicting. There are, indeed, conflicting
findings espoused by the petitioner SSC and the appellate court relative to the existence of
employer-employee relationship between the respondent cooperative and its owners-members,
which necessitates a departure from the oft-repeated rule that factual issues may not be the
subject of appeals to this Court.
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. [25] 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. [26] 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.[27] 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.[28] 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.[29] In this case, the weekly stipends or the so-called 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. [30] 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. [31] 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.[32] Also, the respondent cooperative is solely and entirely
responsible for its owners-members, team leaders and other representatives at Stanfilco. [33] 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. [34] 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.[35]
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.[36] 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[37] 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 coowner 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 ownermember. 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.[38] 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.[39] 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. 0623-2460.[40] In its by-laws,[41] 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 ownersmembers 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. This being our
conclusion, it is no longer necessary to discuss the issue of whether the respondent cooperative

was estopped from assailing the jurisdiction of the petitioner SSC when it filed its Answer with
Motion to Dismiss.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January
2006 and 20 March 2006, respectively, are hereby REVERSED and SET ASIDE. The Orders of
the
petitioner
SSC
dated 17
February
2004 and 16
September
2004 are
hereby REINSTATED. The petitioner SSC is hereby DIRECTED to continue hearing the petitioncomplaint filed before it by the petitioner SSS as regards the compulsory coverage of the
respondent cooperative and its owners-members. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-26298 September 28, 1984

CMS ESTATE, INC., petitioner,
vs.
SOCIAL SECURITY SYSTEM and SOCIAL SECURITY COMMISSION, respondents.
Sison Dominguez & Cervantes for petitioner.
The Legal Counsel for respondent SSS.

CUEVAS, J.:
This appeal by the CMS Estate, Inc. from the decision rendered by the Social Security
Commission in its Case No. 12, entitled "CMS Estate, Inc. vs. Social Security System, declaring
CMS subject to compulsory coverage as of September 1, 1957 and "directing the Social Security
System to effect such coverage of the petitioner's employees in its logging and real estate
business conformably to the provision of Republic Act No. 1161, as amended was certified to Us
by the defunct Court of Appeals 1 for further disposition considering that purely questions of law
are involved.
Petitioner is a domestic corporation organized primarily for the purpose of engaging in the real
estate business. On December 1, 1952, it started doing business with only six (6) employees. It's
Articles of Incorporation was amended on June 4, 1956 in order to engage in the logging business.
The Securities and Exchange Commission issued the certificate of filing of said amended articles
on June 18, 1956. Petitioner likewise obtained an ordinary license from the Bureau of Forestry to
operate a forest concession of 13,000 hectares situated in the municipality of Baganga, Province
of Davao.
On January 28, 1957, petitioner entered into a contract of management with one Eufracio D. Rojas
for the operation and exploitation of the forest concession The logging operation actually started
on April 1, 1957 with four monthly salaried employees. As of September 1, 1957, petitioner had 89
employees and laborers in the logging operation. On December 26, 1957, petitioner revoked its
contract of management with Mr. Rojas.
On August 1, 1958, petitioner became a member of the Social Security System with respect to its
real estate business. On September 6, 1958, petitioner remitted to the System the sum of P203.13
representing the initial premium on the monthly salaries of the employees in its logging business.
However, on October 9, 1958, petitioner demanded the refund of the said amount, claiming that it
is not yet subject to compulsory coverage with respect to its logging business. The request was
denied by respondent System on the ground that the logging business was a mere expansion of
petitioner's activities and for purposes of the Social Security Act, petitioner should be considered a
member of the System since December 1, 1952 when it commenced its real estate business.
On November 10, 1958, petitioner filed a petition with the Social Security Commission praying for
the determination of the effectivity date of the compulsory coverage of petitioner's logging
business.
After both parties have submitted their respective memoranda, the Commission issued on January
14, 1960, Resolution No. 91, 2 the dispositive portion of which reads as follows:

Premises considered, the instant petition is hereby denied and petitioner is hereby
adjudged to be subject to compulsory coverage as of Sept. 1, 1957 and the Social
Security System is hereby directed to effect such coverage of petitioner's employees
in its logging and real estate business conformably to the provisions of Rep. Act No.
1161, as amended.
SO ORDERED.
Petitioner's motion for reconsideration was denied in Resolution No. 609 of the Commission.
These two (2) resolutions are now the subject of petitioner's appeal. Petitioner submits that
respondent Commission erred in holding
(1) that the contributions required of employers and employees under our Social
Security Act of 1954 are not in the nature of excise taxes because the said Act was
allegedly enacted by Congress in the exercise of the police power of the State, not of
its taxing power;
(2) that no contractee independent contractor relationship existed between
petitioner and Eufracio D. Rojas during the time that he was operating its forest
concession at Baganga, Davao;
(3) that a corporation which has been in operation for more than two years in one
business is immediately covered with respect to any new and independent business
it may subsequently engage in;
(4) that a corporation should be treated as a single employing unit for purposes of
coverage under the Social Security Act, irrespective of its separate, unrelated and
independent business established and operated at different places and on different
dates; and
(5) that Section 9 of the Social Security Act on the question of compulsory
membership and employers should be given a liberal interpretation.
Respondent, on the other hand, advances the following propositions, inter alia:
(1) that the Social Security Act speaks of compulsory coverage of employers and not
of business;
(2) that once an employer is initially covered under the Social Security Act, any other
business undertaken or established by the same employer is likewise subject in spite
of the fact that the latter has not been in operation for at least two years;
(3) that petitioner's logging business while actually of a different, distinct, separate
and independent nature from its real estate business should be considered as an
operation under the same management;
(4) that the amendment of petitioner's articles of incorporation, so as to enable it to
engage in the logging business did not alter the juridical personality of petitioner; and
(5) the petitioner's logging operation is a mere expansion of its business activities.

The Social Security Law was enacted pursuant to the policy of the government "to develop,
establish gradually and perfect a social security system which shall be suitable to the needs of the
people throughout the Philippines, and shall provide protection against the hazards of disability,
sickness, old age and death" (Sec. 2, RA 1161, as amended). It is thus clear that said enactment
implements the general welfare mandate of the Constitution and constitutes a legitimate exercise
of the police power of the State. As held in the case of Philippine Blooming Mills Co., Inc., et al. vs.
SSS 3
Membership in the SSS is not a result of bilateral, concensual agreement where the
rights and obligations of the parties are defined by and subject to their will, RA 1161
requires compulsory coverage of employees and employers under the System. It is
actually a legal imposition on said employers and employees, designed to provide
social security to the workingmen. Membership in the SSS is therefore, in
compliance with the lawful exercise of the police power of the State, to which the
principle of non-impairment of the obligation of contract is not a proper defense.
xxx xxx xxx
The taxing power of the State is exercised for the purpose of raising revenues. However, under
our Social Security Law, the emphasis is more on the promotion of the general welfare. The Act is
not part of out Internal Revenue Code nor are the contributions and premiums therein dealt with
and provided for, collectible by the Bureau of Internal Revenue. The funds contributed to the
System belong to the members who will receive benefits, as a matter of right, whenever the
hazards provided by the law occur.
All that is required of appellant is to make monthly contributions to the System for
covered employees in its employ. These contributions, contrary to appellant's
contention, are not 'in the nature of taxes on employment.' Together with the
contributions imposed upon employees and the Government, they are intended for
the protection of said employees against the hazards of disability, sickness, old age
and death in line with the constitutional mandate to promote social justice to insure
the well-being and economic security of all the people. 4
Because of the broad social purpose of the Social Security Act, all doubts in construing the Act
should favor coverage rather than exemption.
Prior to its amendment, Sec. 9 of the Act provides that before an employer could be compelled to
become a member of the System, he must have been in operation for at least two years and has
at the time of admission at least six employees. It should be pointed out that it is the employer,
either natural, or judicial person, who is subject to compulsory coverage and not the business. If
the intention of the legislature was to consider every venture of the employer as the basis of a
separate coverage, an express provision to that effect could have been made. Unfortunately,
however, none of that sort appeared provided for in the said law.
Should each business venture of the employer be considered as the basis of the coverage, an
employer with more than one line of business but with less than six employees in each, would
never be covered although he has in his employ a total of more than six employees which is
sufficient to bring him within the ambit of compulsory coverage. This would frustrate rather than
foster the policy of the Act. The legislative intent must be respected. In the absence of an express
provision for a separate coverage for each kind of business, the reasonable interpretation is that
once an employer is covered in a particular kind of business, he should be automatically covered

with respect to any new name. Any interpretation which would defeat rather than promote the ends
for which the Social Security Act was enacted should be eschewed. 5
Petitioner contends that the Commission cannot indiscriminately combine for purposes of
coverage two distinct and separate businesses when one has not yet been in operation for more
than two years thus rendering nugatory the period for more than two years thus rendering
nugatory the period of stabilization fixed by the Act. This contention lacks merit since the
amendatory law, RA 2658, which was approved on June 18, 1960, eliminated the two-year
stabilization period as employers now become automatically covered immediately upon the start of
the business.
Section 10 (formerly Sec. 9) of RA 1161, as amended by RA 2658 now provides:
Sec. 10. Effective date of coverage. Compulsory coverage of the employer shall
take effect on the first day of his operation, and that of the employee on the date of
his employment. (Emphasis supplied)
As We have previously mentioned, it is the intention of the law to cover as many persons as
possible so as to promote the constitutional objective of social justice. It is axiomatic that a later
law prevails over a prior statute and moreover the legislative in tent must be given effect. 6
Petitioner further submits that Eufrancio Rojas is an independent contractor who engages in an
independent business of his own consisting of the operation of the timber concession of the
former. Rojas was appointed as operations manager of the logging consession; 7 he has no power
to appoint or hire employees; as the term implies, he only manages the employees and it is
petitioner who furnishes him the necessary equipment for use in the logging business; and he is
not free from the control and direction of his employer in matter connected with the performance of
his work. These factors clearly indicate that Rojas is not an independent contractor but merely an
employee of petitioner; and should be entitled to the compulsory coverage of the Act.
The records indubitably show that petitioner started its real estate business on December 1, 1952
while its logging operation was actually commenced on April 1, 1957. Applying the provision of
Sec. 10 of the Act, petitioner is subject to compulsory coverage as of December 1, 1952 with
respect to the real estate business and as of April 1, 1957 with respect to its logging operation.
WHEREFORE, premises considered, the appeal is hereby DISMISSED. With costs against
petitioner.
SO ORDERED.
Makasiar (Chairman), Aquino, Abad Santos and Escolin, JJ., concur.
Concepcion, Jr. and Guerrero, JJ., are on leave.

CMS ESTATE INC VS SSS 132 SCRA 106 (1984)

Art. II Sec 18 (1987 Constitution): The State affirms labor as a primary social economic
force. It shall protect the rights of workers and promote their welfare Art. XIII Sec 1: The
Congress shall give highest priority to the enactment of measures that protect and enhance
the right of all the people to human dignity, reduce social, economic and political

inequalities, and remove cultural inequalities by equitably diffusing wealth and political
power for the common good. To this end, the State shall regulate the acquisition,
ownership, use and disposition of property and its increments.

FACTS:
Petitioner CMS Estate Inc is a domestic corporation engaged in the real estate business. In
December 1952, it began with only 6 employees. In 1956, it also engaged in the logging
business and obtained an ordinary license from the Bureau of Forestry to operate forest
concession (13,000 hectares) in Baganga, Davao.In January 1957, CMS Estate entered
into a contract of management with Eufracio Rojas for the operation of the logging
concession which began in April 1957 with four employees earning monthly salaries. By
September 1957, CMS Estate had 89 employees in the logging operation. But on
December 1957, CMS Estate revoked its contract with Rojas. By August 1958, CMS Estate
became a member of SSS with respect to its real estate business and remitted to the SSS
P203.13 representing the initial premium of the salaries of the employees in the logging
business.
But on October 1958, petitioner demanded the refund of the amount, alleging that it is not
yet subject to compulsory coverage in its logging business. Respondent SSS denied the
petition on the ground that the logging business is only an expansion of the companys
existing activities and that it should be considered a member since December 1952 when it
opened its business.
CMS Estate contends that the SSS contributions required of employees and employers
under the SSS Act of 1954 are not in the nature of excise taxes and therefore, not
compulsory of employers.
ISSUE:
W/N Petitioners logging business is subject to compulsory coverage in the SSS
HELD:
The Social Security Law was enacted pursuant to the policy to develop, establish gradually
and perfect a social security system which shall be suitable to the needs of the people
throughout the Philippines and provide protection against the hazards of disability, sickness,
old age and death. It is clear then that the implementation of the SSS Law is in line with the
general welfare mandate of the Constitution and as such, is a legitimate exercise of the
police power.
As held in Philippine Blooming Mills Co. vs. SSS: membership in the SSS is not a bilateral,
consensual agreement where obligations and rights of the parties are subject to their will.
RA 1161 requires compulsory coverage of employees and employers under the system. As
such, the principle of non-impairment of obligation of contract cannot be raised as a
defense