CMS Estate, Inc. v.

Social Security System

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

Facts: Petitioner is a domestic corporation organized primarily for the purpose of engaging in real estate
business. On December 1, 1952, it started doing business with only six (6) employees. 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.
- December 26, 1957: petitioner revoked its contract of management with Mr. Rojas.
- 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.
- October 9, 1958: petitioner demanded the refund of the said amount.
- 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.
- January 14, 1960: the instant petition was denied and petitioner was adjudged to be subject to
compulsory coverage as Sept. 1, 1957 and the Social Security System was 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.
Petitioner’s Claim
CMS Estate, Inc. is not yet subject to compulsory coverage with respect to its logging business because it
does not have the minimum required number of employees (per company).
Respondent’s Comments
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.

Issues: 1. Whether the contributions required of employers and employees under our Social Security Act
of 1954 are obligatory 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. Whether a contractee-independent contractor relationship existed between petitioner and Eufracio
Rojas. during the time that he was operating its forest concession at Baganga, Davao
3. Whether Section 9 of the Social Security Act on the question of compulsory membership and
employers should be given a liberal interpretation

Held: 1. The said enactment implements the general welfare mandate of the Constitution and
constitutes a legitimate exercise of the police power of the State.
- 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).
- 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. The principle of non-
impairment of the obligation of contract as provided in the Bill of Rights is not a proper defense, the
enactment being a lawful exercise of the police power of the State.
- 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.
- 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.
- 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 clear that a later law prevails over a prior statute and moreover the
legislative intent must be given effect.

2. Rojas was not an independent contractor but merely an employee of the petitioner.
- Rojas was appointed as operations manager of the logging concession; 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. Rojas should be
entitled to the compulsory coverage of the Act.

3. 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.
- 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

The records 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 (previously Sec. 9)
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. The appeal is dismissed,
with costs against the petitioner.
 Agapita Pajarillo, et al vs. Social Security System,
(August 31, 1966, G.R. No. L-21930)

Facts: Appellants are owners of fishing boats being used for fishing at sea. As such property-
owners, they enter into agreement1 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.

Issue: WON there exists an employer-employee relationship between the petitioners and the crew-
members of their respective fishing boats within the meaning of Republic Act 1161?

Held: 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. " 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 crew-members 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." In the present case, neither the pilots
nor the crew-members receive compensation from the boat-owners. 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.
1äw phï1.ñët

In the undertaking in question, the boat-owners obviously are not responsible for the wage, salary, or
fee of the pilot and crew-members. 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 crew-
members 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", and exempted from the coverage of the
Social Security Act.

Petitioners-appellants are thus declared exempted from compulsory coverage of the Social Security
law.