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G. As to relationship of management and control

A holding companyis acompany orfirm that owns other companies'outstanding stock.The term usually refers to a company

that does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the

reduction ofrisk for the owners and can allow the ownership and control of a number of different companies.

Affiliate'

A type of inter-company relationship in which one of the companies owns less than a majority of the other company's stock, or a type of

inter-company relationship in which at least two different companies are subsidiaries of a larger company.

A subsidiary, subsidiary company, daughter company,[1]

or sister company[2]

is acompany that is completely or partly owned

by another corporation that owns more than half of the subsidiary's stock,and which normally acting as aholding corporation which at

least partly or (when as) a parent corporation, wholly controls the activities and policies of the daughter corporation.[3][4]

The subsidiary

can be a company,corporation,orlimited liability company.In some cases it is a government orstate-owned enterprise.The controlling

entity is called itsparent company,parent, orholding company.[5]

H. Close Corp

TITLE XII

CLOSE CORPORATIONS

Section 96.Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of

incorporation provide that: (1) All the corporations issued stock of all classes, exclusive of treasury shares, shall be held of record by not

more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more

specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public

offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least

two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the

meaning of this Code.

Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance companies,

public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this

Code.

The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other Titles of this Code shall apply

suppletorily except insofar as this Title otherwise provides.

Section 97.Articles of incorporation.The articles of incorporation of a close corporation may provide:

1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be

stated therein, subject to the provisions of the following section;

2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock;

and

3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code.

The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders

of the corporation rather than by a board of directors. So long as this provision continues in effect:

1. No meeting of stockholders need be called to elect directors;

2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of

applying the provisions of this Code; and

3. The stockholders of the corporation shall be subject to all liabilities of directors.

The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected orappointed by the stockholders, instead of by the board of directors.

Section 102.Pre-emptive rightin close corporations.The pre-emptive right of stockholders in close corporations shall extend to all

stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate

debts, unless the articles of incorporation provide otherwise.

Section 103.Amendmentof articles of incorporation.Any amendment to the articles of incorporation which seeks to delete or remove

any provision required by this Title to be contained in the articles of incorporation or to reduce a quorum or voting requirement stated in

said articles of incorporation shall not be valid or effective unless approved by the affirmative vote of at least two-thirds (2/3) of the
http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Subsidiary#cite_note-1http://en.wikipedia.org/wiki/Subsidiary#cite_note-1http://en.wikipedia.org/wiki/Subsidiary#cite_note-1http://en.wikipedia.org/wiki/Subsidiary#cite_note-2http://en.wikipedia.org/wiki/Subsidiary#cite_note-2http://en.wikipedia.org/wiki/Subsidiary#cite_note-2http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Subsidiary#cite_note-3http://en.wikipedia.org/wiki/Subsidiary#cite_note-3http://en.wikipedia.org/wiki/Subsidiary#cite_note-3http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Subsidiary#cite_note-5http://en.wikipedia.org/wiki/Subsidiary#cite_note-5http://en.wikipedia.org/wiki/Subsidiary#cite_note-5http://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Subsidiary#cite_note-3http://en.wikipedia.org/wiki/Subsidiary#cite_note-3http://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Subsidiary#cite_note-2http://en.wikipedia.org/wiki/Subsidiary#cite_note-1http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Company_(law)


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outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in

the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.

Section 98.Validity of restrictions on transfer of shares. Restrictions on the right to transfer shares must appear in the articles of

incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in

good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase

the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said

period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares

to any third person.

Section 99.Effects of issuance or transfer of stock in breach of qualifying conditions.-

1. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of

incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows the qualifications of the persons

entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his ineligibility to be a

stockholder.

2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be

holders of record of its stock, and if the certificate for such stock conspicuously states such number, and if the issuance or transfer of stock

to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or

transferred is conclusively presumed to have notice of this fact.

3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation, the transferee of

the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction, if such acquisition

violates the restriction.

4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this

section to have, notice either (a) that he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock to

him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to

hold stock of the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its

option, refuse to register the transfer of stock in the name of the transferee.

5. The provisions of subsection (4) shall not be applicable if the transfer of stock, though contrary to subsections (1), (2) or (3), has been

consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation inaccordance with this Title.

6. The term transfer, as used in this section, is not limited to a transfer for value.

7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover under any

applicable warranty, express or implied.

Section 100.Agreementsby stockholders.-

1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all

stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such

stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective

of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of

incorporation.

2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any

voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a

procedure agreed upon by them.

3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as

between the parties on the ground that its effect is to make them partners among themselves.

4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates

to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of

directors: Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts

imposed by this Code on directors.

5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close

corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be

personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance.

Section 101.When board meeting is unnecessaryor improperly held. - Unless the by-laws provide otherwise, any action by the directors of

a close corporation without a meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors; or


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2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or

3. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or

4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in

writing.

If a directors meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a

director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge

thereof.

Section 104.Deadlocks.Notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of

stockholders of a close corporation, if the directors or stockholders are so divided respecting the management of the corpora tions

business and affairs that the votes required for any corporate action cannot be obtained, with the consequence that the business and

affairs of the corporation can no longer be conducted to the advantage of the stockholders generally, the Securities and Exchange

Commission, upon written petition by any stockholder, shall have the power to arbitrate the dispute. In the exercise of such power, the

Commission shall have authority to make such order as it deems appropriate, including an order: (1) cancelling or altering any provision

contained in the articles of incorporation, by-laws, or any stockholders agreement; (2) cancelling, altering or enjoining any resolution or

act of the corporation or its board of directors, stockholders, or officers; (3) directing or prohibiting any act of the corporation or its board

of directors, stockholders, officers, or other persons party to the action; (4) requiring the purchase at their fair value of shares of any

stockholder, either by the corporation regardless of the availability of unrestricted retained earnings in its books, or by the otherstockholders; (5) appointing a provisional director; (6) dissolving the corporation; or (7) granting such other relief as the circumstances

may warrant.

A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or

affiliate of the corporation, and whose further qualifications, if any, may be determined by the Commission. A provisional director is not a

receiver of the corporation and does not have the title and powers of a custodian or receiver. A provisional director shall have all the

rights and powers of a duly elected director of the corporation, including the right to notice of and to vote at meetings of directors, until

such time as he shall be removed by order of the Commission or by all the stockholders. His compensation shall be determined by

agreement between him and the corporation subject to approval of the Commission, which may fix his compensation in the absence of

agreement or in the event of disagreement between the provisional director and the corporation.

Section 105.Withdrawal of stockholder or dissolution of corporation.In addition and without prejudice to other r ights and remedies

available to a stockholder under this Title, any stockholder of a close corporation may, for any reason, compel the said corporation to

purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets inits books to cover its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written

petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors,

officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation

or any stockholder, or whenever corporate assets are being misapplied or wasted.

Organizing the corp

(r) Promoter includes (1) any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, takes

initiative in founding and organizing the business or enterprise of an issuer; or (2) any person who, in connection with the founding and

organizing of the business of an issuer, directly or indirectly, receives in consideration of services or property or both services or property

ten (10%) per centum more of any class of securities of the issuer or ten (10%) per centum or more of the proceeds from the sale of any

class of such securities. However, a person who receives such securities or proceeds either solely underwriting commissions or solely as

consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take

part in founding and organizing the enterprise. (2a)

TITLE VII

STOCKS AND STOCKHOLDERS

Section 60.Subscription contract.Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be

formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or

some other contract. (n)

Section 61.Pre-incorporation subscription.A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a

period of at least six (6) months from the date of subscription, unless all of the other subscribers consent to the revocation, or unless the

incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of

subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the

Securities and Exchange Commission. (n)

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-43350 December 23, 1937


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CAGAYAN FISHING DEVELOPMENT CO., INC.,plaintiff-appellant,

vs.

TEODORO SANDIKO,defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL,J.:

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as

evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee

the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first

mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by

Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was

executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were

registered and annotations thereof appear at the back of transfer certificate of title No. 217.

On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of

which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation, in consideration ofone peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the condition that the

certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid

Tabora's indebtedness to the Philippine National Bank.

The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later,

on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell

the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a

deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right,

titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three

mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the plaintiff, payable

after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four

parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15,

1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court o f

First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from

the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment

absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was

denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an

assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in

consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from

the reasons which we shall presently state.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and

the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made almostfive months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold

such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts

as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation may be said to be lawfully organized, many

things have to be done. Among other things, the law requires the filing of articles of incorporation (secs. 6 et seq., Act. No. 1459). Although

there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case

before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. The contract

itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de factocorporation at the time. Not being in

legal existence then, it did not possess juridical capacity to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been

stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves within

their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms

of the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)

That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a

contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or

faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter

there is not a corporation nor does it possess franchise or faculties for it or others to exercise, until it acquires a complete

existence. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)

Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent corporation

but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others,

as mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent


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for a projected corporation since that which no legal existence could have no agent. A corporation, until organized, has no l ife and

therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of

a corporation be ratified by the corporation if and when subsequently organized. There are, of course, exceptions (Fletcher Cyc. of Corps.,

permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar facts and circumstances of the present case we decline to extend

the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.(Massachusetts rule,

Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts

Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed

that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National

Bank so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have met with

financial reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit 2, it

appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his

wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by

his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain inscribed in

Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of

the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank,

mortgagee of the four parcels of land, always treated Tabora as the owner of the same. ( SeeExhibits E and F.) Two civil suits (Nos. 1931 and

38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels

of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and

succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of Tabora's

indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it may not

attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land.

If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any

resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development

Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment

of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan

Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;

Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development

Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to discuss this

point.lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.

Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.

Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R. No. L-43350 December 23, 1937]

Post undercase digests, Commercial Law atThursday, February 23, 2012 Posted by Schizophrenic Mind

Facts: Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of two loans, Manuel Tabora,

executed in favor of PNB two mortgages over the four parcels of land between August, 1929, and April 1930. Later, a third mortgage on

the same lands was executed also on April, 1930 in favor of Severina Buzon to whom Tabora was indebted.

On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by

virtue of which the four parcels of land owned by him was sold to theplaintiff company, said to under process of incorporation.

Theplaintiff company filed its article incorporation with the Bureau of Commerce and Industry only on October, 1930 (Exhibit 2).

A year later, the board of directors of said company adopted a resolution authorizing its president to sell the four parcels of

lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale wherethe plaintiffsold ceded and transferred to the defendant all its right, titles, and interest in and to the four parcels of land. Exhibit C is

a promissory note drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of

mortgage executed where the four parcels of land were given a security for the payment of the promissory note, Exhibit C.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action in the Court of First

Instance of Manila praying that judgment be rendered against the defendant for the sum stated in the promissory note. After trial, the

court rendered judgment absolving the defendant. Plaintiff presented a motion for new trial, which motion was denied by the trial court.

After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors.

Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko, was valid.

Held: No, it was not.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930(Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer

was made almost five months before the incorporation of the company.

Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the purposes for which

such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. But before a

corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles

of incorporation.

In the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale,

Exhibit A. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.
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Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent

corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife

and others, as mere promoters of a corporations on the other hand.

For reasons that are self-evident, these promoters could not have acted as agent for a projected corporation since that which

no legal existence could have no agent. A corporation, until organized, has no life and therefore no faculties.

This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and

when subsequently organized.

There are, of course, exceptions, but under the peculiar facts and circumstances of the present case we decline to extend the

doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.

RIZAL LIGHT & ICE vs.THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION

September 28, 1968 / Zaldivar, J.

Facts: (Note: this decision is a consolidation of 2 cases)

Rizal Light & Ice Co. was granted by the Commission a certificate of public convenience and necessity for the installation,operation and maintenance of an electric light, heat and power service in the municipality of Morong, Rizal

Commission required the petitioner to appear before it to show cause why it should not be penalized for violation of theconditions of its certificate of public convenience and the regulations of the Commission, and for failure to comply with the

directives to raise its service voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the

Commission, and to acquire and install a kilowattmeter to indicate the load in kilowatts at any particular time of the generating

unit

The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission, was authorized to conductthe hearing for the reception of the evidence of the parties

For failure of the petitioner to appear at the hearing, Commission ordered the cancellation and revocation of petitioner'scertificate of public convenience and necessity and the forfeiture of its franchise

Petitioner moved for reconsideration of said order on the ground that its manager was not aware of said hearing Finding that the failure of the petitioner to appear at the hearing the sole basis of the revocation of petitioner's certificate

was really due to the illness of its manager, the Commission set aside its order of revocation

municipality formally asked the Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise onthe ground, among other things, that it failed to comply with the conditions of said certificate and franchise

inspections had been made of petitioner's electric plant and installations When the case was called for hearing, petitioner failed to appear again so municipality was then allowed to present itsdocumentary evidence, and thereafter the case was submitted for decision on the basis of the inspection reports, Commission found that the petitioner had failed to comply with the directives and had

violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission ordered

the cancellation and revocation of petitioner's certificate of public convenience and the forfeiture of its franchise

petitioner moved for reconsideration of the decision but before said motion for reconsideration was filed, Morong Electric filedwith the Commission an application for a certificate of public convenience and necessity for said service

Petitioner opposed the application of Morong ElectricIssues: (only those relevant to our topic)

(1) WON the Commission acted without or in excess of its jurisdiction when it delegated the hearing of the case and the reception of

evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the same

-petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case below, is a division chief, he is not

a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have delegated to

him the authority to conduct the hearings for the reception of evidence of the parties(2) WON the cancellation of petitioner's certificate of public convenience was unwarranted because no sufficient evidence was adduced

against the petitioner and that petitioner was not able to present evidence in its defense

-petitioner contends that the evidence consisting of inspection reports upon which the Commission based its decision is

insufficient and untrustworthy in that (1) the authors of said reports had not been put to test by way of cross-examination; (2) the

reports constitute only one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was

not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, to the effect that the petitioner

had improved its service before its electric power plant was burned which testimony contradicts the inspection reports; and (4)

the Commission acted both as prosecutor and judge passing judgment over the very same evidence presented by it as

prosecutor a situation "not conducive to the arrival at just and equitable decisions"

Held:

1. YES BUT...Indeed, Mr. Talavera is not a lawyer.

Under the second paragraph of Section 32 of Commonwealth Act No. 146, as amended,

the

Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However, the petitioner israising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the authority of

Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, petitioner had appeared and submitted

evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of the order

cancelling and revoking its certificate. Through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing officer,

and the counsel for respondent municipality, regarding procedure in order to abbreviate the proceedings.It is only after the decision

in the case turned out to be adverse to it that petitioner questioned the proceedings held before Mr. Talavera.

Objection to the delegation of authority to hear a case filed before the Commission and to receive the evidence in connection

therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the objection and the case had

been decided by the Commission.Since petitioner has never raised any objection to the authority of Mr. Talavera before the


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Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of

the generating unit.3

For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation and revocation

of petitioner's certificate of public convenience and necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of

said order on the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the motion

alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the requirements of the Commission

for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission,was authorized to conduct the hearing for the reception of the evidence of the parties.4

Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 the sole basis of the revocation of

petitioner's certificate was really due to the i llness of its manager, Juan D. Francisco, the Commission set aside its order of revocation.

Respondent municipality moved for reconsideration of this order of reinstatement of the certificate, but the motion was denied.

In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the Commission to revoke

petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with the

conditions of said certificate and franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had been

postponed several times.

Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the Commission, as follows:

April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S. Martinez.

The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing on December 15,

1960 that improvements have been made on its service since the inspection on July 12-13, 1960, and that, on the basis of the inspection

report to be submitted, it would agree to the submission of the case for decision without further hearing.

When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was then allowed t o

present its documentary evidence, and thereafter the case was submitted for decision.

On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with a copy of the report

of the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated August 25, 1961, petitioner was granted a period

of ten (10) days within which to submit its written reply to said inspection report, on condition that should it fail to do so within the said

period the case would be considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25,

1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned.

In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed engineers, found that

the petitioner had failed to comply with the directives contained in its letters dated May 21, 1954 and September 4, 1954, and had violated

the conditions of its certificate of public convenience as well as the rules and regulations of the Commission. The Commission concluded

that the petitioner "cannot render the efficient, adequate and satisfactory electric service required by its certificate and that it is against

public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and revocation of petitioner's certificate of

public convenience and the forfeiture of its franchise.

On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric plant was burned on

July 29, 1962, its service was greatly improved and that it had still existing investment which the Commission should protect. But eight days

before said motion for reconsideration was fi led, or on September 10, 1962, Morong Electric, having been granted a municipal franchise on

May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light and power service in said municipality

approved by the Provincial Board of Rizal on August 31, 1962 filed with the Commission an application for a certificate of public

convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc., Applicant", and docketed as Case No.

62-5143.

Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder of a certificate of

public convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the approval of

said application would not promote public convenience, but would only cause ruinous and wasteful competition. Although the op position is

dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or twenty four days after the order of general

default was issued in open court when the application was first called for hearing on October 15, 1962. On November 12, 1962, however,

the petitioner filed a motion to lift said order of default. But before said motion could be resolved, petitioner filed another motion, dated

January 4, 1963, this time asking for the dismissal of the application upon the ground that applicant Morong Electric had no legal

personality when it filed its application on September 10, 1962, because its certificate of incorporation was issued by the Securities and

Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a formal order issued on January

17, 1963 on the premise that applicant Morong Electric was a de factocorporation. Consequently, the case was heard on the merits and

both parties presented their respective evidence. On the basis of the evidence adduced, the Commission, in its decision dated March 13,

1963, found that there was an absence of electric service in the municipality of Morong and that applicant Morong Electric, a Filipino-

owned corporation duly organized and existing under the laws of the Philippines, has the financial capacity to maintain said service. Thesecircumstances, considered together with the denial of the motion for reconsideration filed by petitioner in Case No. 39715 on February, 15,

1963, such that as far as the Commission was concerned the certificate of the petitioner was already declared revoked and cancelled, the

Commission approved the application of Morong Electric and ordered the issuance in its favor of the corresponding certificate of public

convenience and necessity.1awphl.nt

On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G. R. No. L-20993). Then

on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-5143 (now G. R. No. L-21221).


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In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the Commission acted without or in

excess of its jurisdiction when it delegated the hearing of the case and the reception of evidence to Mr. Pedro S. Talavera who is not

allowed by law to hear the same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no

sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the

Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of

revocation of the certificate.

In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying petitioner's motion todismiss and proceeding with the hearing of the application of the Morong Electric; (2) that the Commission erred in granting Morong

Electric a certificate of public convenience and necessity since it is not financially capable to render the service; (3) that the Commission

erred when it made findings of facts that are not supported by the evidence adduced by the parties at the trial; and (4) that the

Commission erred when it did not give to petitioner protection to its investment a reiteration of the third assignment of error in the

other case.1awphl.nt

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993

1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case

below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission should

not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties.

We find that, really, Mr. Talavera is not a lawyer.5

Under the second paragraph of Section 32 of Commonwealth Act No. 146, as

amended,6

the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However, the

petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the

authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had appeared

and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of

the order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel, petitioner had entered into

agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate

the proceedings.7

It is only after the decision in the case turned out to be adverse to it that petitioner questioned the proceedings held

before Mr. Talavera.

This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the Commission and to

receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the

objection and the case had been decided by the Commission.8 Since petitioner has never raised any objection to the authority of Mr.Talavera before the Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on the

matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be

dismissed.9

2. Anent the second assigned error, the gist of petitioner's contention is that the evidence consisting of inspection reports upon

which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to test by

way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence in its

defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC

Case No. 625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric power plant

was burned on July 29, 1962 which testimony contradicts the inspection reports; and (4) the Commission acted both as prosecutor and

judge passing judgment over the very same evidence presented by it as prosecutor a situation "not conducive to the arrival at just and

equitable decisions."

Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to examine the proof de

novoand determine for itself whether or not the preponderance of evidence really justifies the decision. The only function of this Court is

to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This Court will

not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly

appears that there is no evidence to support it.10

Inasmuch as the only function of this Court in reviewing the decision of the Commission is

to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably be based, as it is not

required to examine the proof de novo, the evidence that should be made the basis of this Court's determination should be only those

presented in this case before the Commission. What then was the evidence presented before the Commission and made the basis of its

decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection reports submitted by its

engineers who conducted the inspection of petitioner's electric service upon orders of the Commission.11

Said inspection reports specify in

detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its service. We consider that said

reports are sufficient to serve reasonably as bases of the decision in question. It should be emphasized, in this connection that said reports,

are not mere documentary proofs presented for the consideration of the Commission, but are the results of the Commission's own

observations and investigations which it can rightfully take into consideration,12

particularly in this case where the petitioner had notpresented any evidence in its defense, and speaking of petitioner's failure to present evidence, as well as its failure to cross-examine the

authors of the inspection reports, petitioner should not complain because it had waived not only its right to cross-examine but also its right

to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the proceedings where the petitioner, through

counsel, manifested in clear language said waiver and its decision to abide by the last inspection report of Engineer Martinez:

Proceedings of December 15, 1960

COMMISSION:


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It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been ordered to make an

inspection of all electric services in the province of Rizal and on that date the engineer of this Commission is still undertaking that

inspection and it appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has submitted his

report on November 18, 1960 which is attached to the records of this case.

ATTY. LUQUE (Councel for Petitioner):

... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it was made sometimeJuly of this year and I understand from the respondent that there is some improvement since this report was made ... we respectfully

request that an up-to-date inspection be made ... . An inspector of this Commission can be sent to the plant and considering that the

engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points involved we pray that his report will be used by us

for the reason that he is a technical man and he knows well as he has done a good job and I think our proposition would expedite the

matter. We sincerely believe that the inspection report will be the best evidence to decide this matter.

x x x x x x x x x

ATTY. LUQUE:

... This is a very important matter and to show the good faith of respondent in this case we will not even cross-examine the engineer

when he makes a new report. We will agree to the findings and, your honor please, considering as we have manifested before that

Engineer Martinez is an experienced engineer of this Commission and the points reported by Engineer Martinez on the situation of theplant now will prevent the necessity of having a hearing, of us bringing new evidence and complainant bringing new evidence. ... .

x x x x x x x x x

COMMISSION (to Atty. Luque):

Q Does the Commission understand from the counsel for applicant that if the motion is granted he will submit this order to

show cause for decision without any further hearing and the decision will be based on the report of the engineer of this

Commission?

A We respectfully reply in this manner that we be allowed or be given an opportunity just to read the report and 99%, we

will agree that the report will be the basis of that decision. We just want to find out the contents of the report, however, we

request that we be furnished with a copy of the report before the hearing so that we will just make a manifestation that we willagree.

COMMISSION (to Atty. Luque):

Q In order to prevent the delay of the disposition of this case the Commission will allow counsel for the applicant to submit

his written reply to the report that the engineer of this Commission. Will he submit this case without further hearing upon the

receipt of that written reply?

A Yes, your honor.

Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):

In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our witnesses testifying

under oath that we will submit a written reply under oath together with the memorandum within fifteen (15) days and we will furnish a

copy and upon our submission of said written reply under oath and memorandum we consider this case submitted. This suggestion is to

abbreviate the necessity of presenting witnesses here which may prolong the resolution of this case.

ATTY. OLIVAS (Counsel for respondent municipality):

I object on the ground that there is no resolution by this Commission on the action to reopen the case and second this case has been

closed.

ATTY. LUQUE:

With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion to submit a written

reply together with a memorandum. Also as stated to expedite the case and to avoid further hearing we will just submit our written reply.

According to our records we are furnished with a copy of the report of July 17, 1961. We submit your honor.

x x x x x x x x x

COMMISSION:


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To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given 10 days within which

to submit a written reply on the report of the engineer of the Commission who inspected the electric service, in the municipality of

Morong, Rizal, and after the submission of the said written reply within 10 days from today this case will be considered submitted for

decision.

The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the inspection report of Engineer

Martinez as the "best evidence to decide this matter," can serve as an argument against petitioner's claim that the Commision should have

taken into consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken judicialcognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact that is, well established and

authoritatively settled, without qualification and contention;13

second, it was given in a subsequent and distinct case after the petitioner's

motion for reconsideration was heard by the Commission en bancand submitted for decision,14

and third, it was not brought to the

attention of the Commission in this case through an appropriate pleading.15

Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be considered that

there are two matters that had to be decided in this case, namely, the order to show cause dated December 19, 1956, and the petition or

complaint by respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that respondent

municipality had been allowed to present its evidence to substantiate its complaint. It can not be said, therefore, that in this case the

Commission had acted as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the

prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of Commonwealth Act No. 146, as

amended, under which the Commission has power "to investigate, upon its own initiative or upon complaint in writing, any matter

concerning any public service as regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and proper

service as the public interest may require and warrant; to enforce compliance with any standard, rule, regulation, order or otherrequirement of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438, July

31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of public convenience and necessity may be

exercised by it even without a formal charge filed by any interested party, with the only limitation that the holder of the certificate should

be given his day in court.

It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an administrative body, as in

the case of the Public Service Commission, said body may take steps it believes appropriate for the proper exercise of said duties,

particularly in the manner of informing itself whether there is probable violation of the law and/or its rules and regulations. It may initiate

an investigation, file a complaint, and then try the charge as preferred. So long as the respondent is given a day in court, there can be no

denial of due process, and objections to said procedure cannot be sustained.

3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court in Batangas

Transportation Co. vs. Orlanes

16

in this wise:

The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior

license complies with the terms and conditions of his license and reasonable rules and regulations for its operation and meets the

reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the

granting of the second license to another person for the same thing over the same route of travel. The granting of such a license

does not serve its convenience or promote the interests of the public.

The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a certificate of public

convenience.17

Where, as in the present case, it has been shown by ample evidence that the petitioner, despite ample time and

opportunity given to it by the Commission, had failed to render adequate, sufficient and satisfactory service and had violated the important

conditions of its certificate as well as the directives and the rules and regulations of the Commission, the rule cannot apply. To apply that

rule unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the Commission's directives and

regulations, and would close the door to other applicants who could establish, operate and provide adequate, efficient and satisfactory

service for the benefit and convenience of the inhabitants. It should be emphasized that the paramount consideration should always be the

public interest and public convenience. The duty of the Commission to protect investment of a public utility operator refers only to

operators of good standing those who comply with the laws, rules and regulations and not to operators who are unconcerned with

the public interest and whose investments have failed or deteriorated because of their own fault.18

4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner that is, the

revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the imposition of a fine would have been

sufficient, as had been done by the Commission in cases of a similar nature.

It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and

discretion to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or has

willfully and contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law. What matters

is that there is evidence to support the action of the Commission. In the instant case, as shown by the evidence, the contumacious refusal

of the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation of the conditions of itscertificate and its incapability to comply with its commitment as shown by its inadequate service, were the circumstances that warranted

the action of the Commission in not merely imposing a fine but in revoking altogether petitioner's certificate. To allow petitioner to

continue its operation would be to sacrifice public interest and convenience in favor of private interest.

A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and such privilege

is forfeited when the grantee fails to comply with his commitments behind which lies the paramount interest of the public, for

public necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal Revenue v. Estate of F. P.

Buan, et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)


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(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which the public

utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility

shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of

the terms and conditions for which the license was granted, the Commission has ample power to enforce the provisions of the

license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions . (Batangas Trans. Co. v.

Orlanes, 52 Phil. 455, 460; emphasis supplied)

Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides that a public utilityoperator violating or failing to comply with the terms and conditions of any certificate, or any orders, decisions or regulations of the

Commission, shall be subject to a fine and that the Commission is authorized and empowered to impose such fine, after due not ice and

hearing. It should be noted, however, that the last sentence of said section states that the remedy provided therein "shall not be a bar to,

or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words, the

imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion. But that remedy is not exclusive

of, or has preference over, the other remedies. And this Court will not substitute its discretion for that of the Commission, as long as there

is evidence to support the exercise of that discretion by the Commission.

G. R. No. L-21221

Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing the operation of a

public service, three requisites must be complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United States,

or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, sixty

per centum at least of the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the United States; 19 (2) theapplicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation;

20and

(3) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public

interest in a proper and suitable manner.21

As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation duly organized and

existing under the laws of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable of operating an electric

light, heat and power service, and that at the time the decision was rendered there was absence of electric service in Morong, Rizal. While

the petitioner does not dispute the need of an electric service in Morong, Rizal,22

it claims, in effect, that Morong Electric should not have

been granted the certificate of public convenience and necessity because (1) it did not have a corporate personality at the time it was

granted a franchise and when it applied for said certificate; (2) it is not financially capable of undertaking an electric service, and (3)

petitioner was rendering efficient service before its electric plant was burned, and therefore, being a prior operator its investment should

be protected and no new party should be granted a franchise and certificate of public convenience and necessity to operate an electric

service in the same locality.

1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a

contract,23

at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are in

being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of

incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of

incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical

personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it was not yet in

esseis null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric argues, and to which

argument the Commission agrees, that it was a de factocorporation at the time the franchise was granted and, as such, it was not

incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric maintains

that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the Commission.

Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was

granted to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its certificate

of incorporation was issued by the SEC.24

Before that date, or pending the issuance of said certificate of incorporation, the incorporators

cannot be considered as de factocorporation.25

But the fact that Morong Electric had no corporate existence on the day the franchise was

granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of incorporation and then

accepted the franchise in accordance with the terms and conditions thereof. This view is sustained by eminent American authorities. Thus,

McQuiuin says:

The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the

streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is

organized. And in Illinois it has been decided that the ordinance granting the franchise may be presented before the corporation

grantee is fully organized, where the organization is completed before the passage and acceptance. (McQuillin, Municipal

Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)

Fletcher says:

While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be applied

for before the company is fully organized.

A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher, Cyclopedia Corp.

Permanent Edition, Rev. Vol. 6-A, Sec. 2881)

And Thompson gives the reason for the rule:


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(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an ordinance

granting a privilege to a corporation is not void because the beneficiary of the ordinance is not fully organized at the time of the

introduction of the ordinance. It is enough that organization is complete prior to the passage and acceptance of the ordinance.

The reason is that a privilege of this character is a mere license to the corporation until it accepts the grant and complies with its

terms and conditions. (Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929)26

The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting

the application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondentmunicipality and Morong Electric but also cured the deficiency pointed out by the petit ioner in the application of Morong EIectric. Thus, the

Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The eff icacy of the

franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that

Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises, subject to

the approval of the provincial board and the President. However, under Section 16(b) of Commonwealth Act No. 146, as

amended, the Public Service Commission is empowered "to approve, subject to constitutional limitations any franchise or

privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of the Philippines

when, in the judgment of the Commission, such franchise or privilege will properly conserve the public interests and the

Commission shall in so approving impose such conditions as to construction, equipment, maintenance, service, or operation as

the public interests and convenience may reasonably require, and to issue certificates of public convenience and necessity when

such is required or provided by any law or franchise." Thus, the efficacy of a municipal electric franchise arises, therefore, only

after the approval of the Public Service Commission. (Almendras vs. Ramos, 90 Phil. 231) .

The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding

of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko27

upon which the petitioner leans heavily in support of its

position. In said case this Court held that a corporation should have a full and complete organization and existence as an entity before it

can enter into any kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in that case

that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the

corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally hold that

a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when

organized.28

2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been shown, the next

question to be resolved is whether said company has the financial qualification to operate an electric light, heat and power service.

Petitioner challenges the financial capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal,

president of said company, regarding its assets and the amount of its initial investment for the electric plant. In this connection it should bestated that on the basis of the evidence presented on the matter, the Commission has found the Morong Electric to be "financially qualified

to install, maintain and operate the proposed electric light, heat and power service." This is essentially a factual determination which, in a

number of cases, this Court has said it will not disturb unless patently unsupported by evidence. An examination of the record of this case

readily shows that the testimony of Mr. Ingal and the documents he presented to establish the financial capability of Morong Electric

provide reasonable grounds for the above finding of the Commission.

It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public Service

Commission, after weighing the evidence adduced by the parties in a public service case, will not be disturbed by the Supreme

Court unless those findings and conclusions appear not to be reasonably supported by evidence. (La Mallorca and Pampanga Bus

Co. vs. Mercado, L-19120, November 29, 1965)

For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the Public Service

Commission's findings of financial capacity on the part of applicants, rendering such findings beyond our power to disturb. (Del

Pilar Transit vs. Silva, L-21547, July 15, 1966)

It may be worthwhile to mention in this connection that per inspection report dated January 20, 196429

of Mr. Meliton Martinez of

the Commission, who inspected the electric service of Morong on January 15-16, 1964, Morong Electric "is serving electric service to the

entire area covered by its approved plan and has constructed its line in accordance with the plans and specifications approved by the

Commission." By reason thereof, it was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the

amount of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal Council of

Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in its petition, dated September 16, 1963,

be granted. This report removes any doubt as to the financial capability of Morong Electric to operate and maintain an electric light, heat

and power service.

3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is whether, or not, the

findings of fact of the Commission regarding petitioner's service are supported by evidence. It is the contention of the petitioner that the

Commission made some findings of fact prejudicial to its position but which do not find support from the evidence presented in this case.Specifically, petitioner refers to the statements or findings that its service had "turned from bad to worse," that it miserably failed to

comply with the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it has no

longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not only devoid of evidentiary

support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified that petitioner was rendering efficient and

satisfactory service before its electric plant was burned on July 29, 1962.

On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service petitioner was rendering

before its certificate was ordered revoked and cancelled, took judicial notice of the records of the previous case (PSC Case No. 39715)

where the quality of petitioner's service had been squarely put in issue. It will be noted that the findings of the Commission were made

notwithstanding the fact that the aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's


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Memorandum to the Commission.30

The implication is simple: that as between the testimony of Mr. Bernardino and the inspection reports

of the engineers of the Commission, which served as the basis of the revocation order, the Commission gave credence to the latter.

Naturally, whatever conclusion or finding of fact that the Commission arrived at regarding the quality of petitioner's service are not borne

out by the evidence presented in this case but by evidence in the previous case.31

In this connection, we repeat, the conclusion, arrived at

by the Commission after weighing the conflicting evidence in the two related cases, is a conclusion of fact which this Court will not disturb.

And it has been held time and again that where the Commission has reached a conclusion of fact after weighing the

conflicting evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it clearly appears thatthere is no evidence to support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L-19120,

November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)

For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong, Rizal, is not tenable;

and its plea for protection of its investment, as in the previous case, cannot be entertained.

WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with costs

in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.

FIRST DIVISION

G.R. No. L-48627 June 30, 1987

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners

vs.

THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.

CRUZ,J.:

We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-defendants in the lower

court 1because of the challenge to the following paragraph in the dispositive portion of the decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the preparation

of the project study and his technical services that led to the organization of the defendant corporation, plus

P10,000.00 attorney's fees;2

The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private respondent

regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation that was later created, they

should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-

defendants in the lower court, **who were the ones who requested the said services from the private respondent.3

We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the respondent court and may, for

this reason, be presumed to have accepted the same. For purposes of resolving this case before us, it is not necessary to determine

whether it is the promoters of the proposed corporation, or the corporation itself after its organization, that shall be responsible for the

expenses incurred in connection with such organization.

The only question we have to decide now is whether or not the petitioners themselves are alsoandpersonallyliable for such expenses and,

if so, to what extent.

The reasons for the said order are given by the respondent court in its decision in this wise:

As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project

study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but the

other defendants including defendants Caram should be jointly and severally liable for this amount. As we above

related it was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation o

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