G.R. No. L-17662 - San Teodoro Development Enterprises, Inc. vs. Social Security System

On January 8, 1959, San Teodoro Sawmill Co., Inc.—formerly registered as Chua Lara & Company, Ltd. and doing business under the name “San Teodoro Sawmill”—received a letter from the Acting Administrator of the Social Security System.
The letter notified the company that it was subject to the compulsory coverage of the Social Security Law effective September 1, 1957, with its coverage dated from August 1, 1957 for the employer and September 1, 1957 for its qualified employees.

The counsel for the company argued that San Teodoro Development Enterprises, Inc. (the new corporate form) was incorporated on January 2, 1957 and was legally distinct and separate from the defunct partnership, Chua Lam & Company, Ltd.
Based on the distinct incorporation date and separation of liabilities from the partnership (organized on June 23, 1951), the counsel contended that the company should only be covered by the law from January 3, 1959 and not from August 1, 1957.

Chua Lam & Company, Ltd. was a limited partnership registered on August 3, 1951 that operated under the trade name “San Teodoro Sawmill” with the purpose of engaging in lumber sawmilling.
The partners, whose contributions included Chua Lam, Chua Tu, Chua Guan, Vicente Keh Ho, and Lim Te, dissolved the partnership by mutual consent on December 15, 1956, with formal dissolution occurring on July 19, 1957.
On January 2, 1957, the San Teodoro Sawmill Co., Inc. was incorporated; four out of its eight incorporators were former partners of the dissolved partnership.
A deed of absolute sale dated June 4, 1957, executed by the liquidator (Chua Lam) of the defunct partnership, transferred the bulk of the partnership’s assets and equipment to the new corporation.
The articles of incorporation of the corporation were later amended on January 23, 1958 to change its name to San Teodoro Development Enterprises, Inc. and to expand its purposes, including entering other business ventures such as mining and real estate development.
The retained trade name “San Teodoro Sawmill” and continuity in management (with former partners occupying key positions) illustrate the continuity of the business operations and structure between the defunct partnership and the new corporation.

The Commission observed that the dissolution of the partnership and the organization of the corporation were executed in a sequence designed to ensure a smooth, uninterrupted transfer of business functions.
It found that the new corporation was not substantially different from the defunct partnership, evidenced by:

Transfer of the entire business assets and equipment for valuable consideration.
Continuation of the same trade name and, apparently, the same employees.
Former partners owning and controlling a significant portion of the new corporation’s stock and holding managerial positions.

Based on these findings, the Commission concluded that the change in legal personality was merely formal and did not alter the substance of the business, thus placing the new corporation within the purview of the Social Security Law effective from August 1, 1957.
Consequently, the petition for exemption from the compulsory coverage was denied, and the subsequent motion for reconsideration was also rejected.

Whether the new corporate entity, San Teodoro Development Enterprises, Inc., can claim that its legal personality is distinct from that of the defunct partnership, thereby justifying a later effective date of coverage under the Social Security Law.
Whether the mere formal change in juridical form, despite the continuity in management, ownership, trade name, and transfer of business assets, amounts to an evasion of statutory obligations.
Whether the sequence of events—specifically the timing of the incorporation, the asset transfer, and the dissolution of the partnership—supports the petitioner’s contention of a separate entity free from liabilities incurred before the reorganization.