1.
Organizing the Corporation the latter has fully and completely paid Tabora's indebtedness to the
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43350 December 23, 1937
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 of one 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
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 of
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 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 (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
facto corporation 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 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. 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.
(See Exhibits 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.
XXXXXXXXXXXXXXXXXXXXXXX
EN BANC
G.R. No. L-20993 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner,
vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION, respondents.
----------------------------
G.R. No. L-21221 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner,
vs.
THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO.,
INC., respondents.
Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.
ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to
review and set aside the orders of respondent Public Service
Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC
Case No. 39716, cancelling and revoking the certificate of public
convenience and necessity and forfeiting the franchise of said petitioner.
In the same petition, the petitioner prayed for the issuance of a writ of
preliminary injunction ex partesuspending the effectivity of said orders
and/or enjoining respondents Commission and/or Municipality of Morong,
Rizal, from enforcing in any way the cancellation and revocation of
petitioner's franchise and certificate of public convenience during the
pendency of this appeal. By resolution of March 12, 1963, this Court
denied the petition for injunction, for lack of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc.
to review and set aside the decision of the Commission dated March 13,
1963 in PSC Case No. 62-5143 granting a certificate of public
convenience and necessity to respondent Morong Electric Co., Inc. 2 to
operate an electric light, heat and power service in the municipality of
Morong, Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for
the issuance of a writ of preliminary injunction ex parte suspending the
effectivity of said decision. Per resolution of this Court, dated May 6,
1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with
business address at Morong, Rizal. On August 15, 1949, it 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.
In an order dated December 19, 1956, the Commission required the
petitioner to appear before it on February 18, 1957 to show cause why it
should not be penalized for violation of the conditions 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 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 illness 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 to 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 filed, 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 opposition 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 facto corporation. 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. These
circumstances, 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. 1aw phîl.nèt
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).
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 to dismiss 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.1awphîl.nèt
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 novo and
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 not
presented 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:
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 sometime July 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.
xxx xxx xxx
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 the plant now will
prevent the necessity of having a hearing, of us bringing new evidence
and complainant bringing new evidence. ... .
xxx xxx xxx
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 will agree.
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.
xxx xxx xxx
COMMISSION:
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 judicial cognizance 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 banc and 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 other
requirement 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 its certificate 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)
(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 utility operator
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 notice 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) the applicant must
be financially capable of undertaking the proposed service and meeting
the responsibilities incident to its operation; 20 and (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 esse is 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
facto corporation 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
facto corporation. 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:
(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 respondent municipality and
Morong Electric but also cured the deficiency pointed out by the petitioner
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 efficacy 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
Sandiko 27 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 be stated 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, 1964 29 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 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. 31In 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 that there 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.
XXXXXXXXXXXXXXX
G.R. No. L-48627
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 1 because 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 also and personally liable 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 of the project study which project study was
 presented to defendant Caram so the latter was convinced to
invest in the proposed airlines. The project study was revised for
purposes of presentation to financiers and the banks. It was on
the basis of this study that defendant corporation was actually
organized and rendered operational. Defendants Garcia and
Caram, and Barretto became members of the Board and/or
officers of defendant corporation. Thus, not only the defendant
corporation but all the other defendants who were involved in the
preparatory stages of the incorporation, who caused the
preparation and/or benefited from the project study and the
technical services of plaintiff must be liable. 4
It would appear from the above justification that the petitioners were not
really involved in the initial steps that finally led to the incorporation of the
Filipinas Orient Airways. Elsewhere in the decision, Barretto was
described as "the moving spirit." The finding of the respondent court is
that the project study was undertaken by the private respondent at the
request of Barretto and Garcia who, upon its completion, presented it to
the petitioners to induce them to invest in the proposed airline. The study
could have been presented to other prospective investors. At any rate,
the airline was eventually organized on the basis of the project study with
the petitioners as major stockholders and, together with Barretto and
Garcia, as principal officers.
The following portion of the decision in question is also worth
considering:
... Since defendant Barretto was the moving spirit in the pre-
organization work of defendant corporation based on his
experience and expertise, hence he was logically compensated in
the amount of P200,000.00 shares of stock not as industrial
partner but more for his technical services that brought to fruition
the defendant corporation. By the same token, We find no reason
why the plaintiff should not be similarly compensated not only for
having actively participated in the preparation of the project study
for several months and its subsequent revision but also in his
having been involved in the pre-organization of the defendant
corporation, in the preparation of the franchise, in inviting the
interest of the financiers and in the training and screening of
personnel. We agree that for these special services of the plaintiff
the amount of P50,000.00 as compensation is reasonable. 5
The above finding bolsters the conclusion that the petitioners were not
involved in the initial stages of the organization of the airline, which were
being directed by Barretto as the main promoter. It was he who was
putting all the pieces together, so to speak. The petitioners were merely
among the financiers whose interest was to be invited and who were in
fact persuaded, on the strength of the project study, to invest in the
proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was
a fictitious corporation and did not have a separate juridical personality,
to justify making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation, the Filipinas
Orient Airways should alone be liable for its corporate acts as duly
authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be
held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such services. It
was only the results of such services that Barretto and Garcia presented
to them and which persuaded them to invest in the proposed airline. The
most that can be said is that they benefited from such services, but that
surely is no justification to hold them personally liable therefor. Otherwise,
all the other stockholders of the corporation, including those who came in
later, and regardless of the amount of their share holdings, would be
equally and personally liable also with the petitioners for the claims of the
private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous
ambivalence. Our impression is that it is opposed to the imposition of
solidary responsibility upon the Carams but seems to be willing, in a
vague, unexpressed offer of compromise, to accept joint liability. While it
is true that it does here and there disclaim total liability, the thrust of the
petition seems to be against the imposition of solidary liability only rather
than against any liability at all, which is what it should have categorically
argued.
Categorically, the Court holds that the petitioners are not liable at all,
jointly or jointly and severally, under the first paragraph of the dispositive
portion of the challenged decision. So holding, we find it unnecessary to
examine at this time the rules on solidary obligations, which the parties-
needlessly, as it turns out have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not
liable under the challenged decision, which is hereby modified
accordingly. It is so ordered.
Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano and Sarmiento,
JJ., concur.
Gancayco, J., took no part.
the Quezon College. I hereby agree to shoulder the expenses
connected with said shares of stock. I further submit myself to all
lawful demands, decisions or directives of the Board of Trustees
of the Quezon College and all its duly constituted officers or
authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa
wikang tagalog na aking nalalaman).
Very respectfully,

(Sgd.) DAMASA CRISOSTOMO

XXXXXXXXXXXXXXXXXXXXXXX Signature of subscriber

b. Subscription Contracts
Nilagdaan sa aming harapan:
G.R. No. L-5003 June 27, 1953
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
NAZARIO TRILLANA, administrator-appellee,
vs.
QUEZON COLLEGE, INC., claimant-appellant. Damasa Crisostomo died on October 26, 1948. As no payment appears
to have been made on the subscription mentioned in the foregoing letter,
the Quezon College, Inc. presented a claim before the Court of First
Singson, Barnes, Yap and Blanco for appellant.
Instance of Bulacan in her testate proceeding, for the collection of the
Delgado, Flores & Macapagal for appellee.
sum of P20,000, representing the value of the subscription to the capital
stock of the Quezon College, Inc. This claim was opposed by the
PARAS, J.: administrator of the estate, and the Court of First Instance of Bulacan,
after hearing issued an order dismissing the claim of the Quezon College,
Damasa Crisostomo sent the following letter to the Board of Trustees of Inc. on the ground that the subscription in question was neither registered
the Quezon College: in nor authorized by the Securities and Exchange Commission. From this
order the Quezon College, Inc. has appealed.
June 1, 1948
It is not necessary for us to discuss at length appellant's various
assignments of error relating to the propriety of the ground relief upon by
The BOARD OF TRUSTEES the trial court, since, as pointed out in the brief for the administrator and
Quezon College appellee, there are other decisive considerations which, though not
Manila touched by the lower court, amply sustained the appealed order.

Gentlemen:
Please enter my subscription to dalawang daan (200) shares of
your capital stock with a par value of P100 each. Enclosed you
will find (Babayaran kong lahat pagkatapos na ako ay makapag-
pahuli ng isda) pesos as my initial payment and the balance
payable in accordance with law and the rules and regulations of
It appears that the application sent by Damasa Crisostomo to the Quezon
College, Inc. was written on a general form indicating that an applicant
will enclose an amount as initial payment and will pay the balance in
accordance with law and the regulations of the College. On the other
hand, in the letter actually sent by Damasa Crisostomo, the latter (who
requested that her subscription for 200 shares be entered) not only did
not enclose any initial payment but stated that "babayaran kong lahat
pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the
record to show that the Quezon College, Inc. accepted the term of
payment suggested by Damasa Crisostomo, or that if there was any
acceptance the same came to her knowledge during her lifetime. As the
application of Damasa Crisostomo is obviously at variance with the terms
evidenced in the form letter issued by the Quezon College, Inc., there
was absolute necessity on the part of the College to express its
agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasa's promise to pay the
price of the subscription after she had caused fish to be caught. In other
words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the
latter offered its stock for subscription on the terms stated in the form
letter, and Damasa applied for subscription fixing her own plan of
payment, — a relation, in the absence as in the present case of
acceptance by the Quezon College, Inc. of the counter offer of Damasa
Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon
College, Inc. becomes the more imperative, in view of the proposal of
Damasa Crisostomo to pay the value of the subscription after she has
harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void, under article
1115 of the old Civil Code which provides as follows: "If the fulfillment of
the condition should depend upon the exclusive will of the debtor, the
conditional obligation shall be void. If it should depend upon chance, or
upon the will of a third person, the obligation shall produce all its effects
in accordance with the provisions of this code." It cannot be argued that
the condition solely is void, because it would have served to create the
obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14
Phil., 99), wherein only the potestative condition was held void because it
referred merely to the fulfillment of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this
Court already held that "a condition, facultative as to the debtor, is
obnoxious to the first sentence contained in article 1115 and renders the
whole obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs
against appellant.
Tuason, Padilla and Reyes, JJ., concur in the result.
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1. Purchase Agreement
EN BANC
G.R. Nos. L-48195 and 48196 May 1, 1942
SOFRONIO T. BAYLA, ET AL., petitioners,
vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET
AL., respondents.
E. A. Beltran for petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for
respondent.
OZAETA, J.:
Petitioners in G.R. No. 48195 instituted this action in the Court of First
Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-
petitioner in G.R. No. 48196), to recover certain sums of money which
they had paid severally to the corporation on account of shares of stock
they individually agreed to take and pay for under certain specified terms
and conditions, of which the following referring to the petitioner Josefa
Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE
"SILANG TRAFFIC COMPANY, INC.,"
Silang, Cavite, P. I.
THIS AGREEMENT, made and entered into between Mrs. Josefa
Naval, of legal age, married and resident of the Municipality of
Silang, Province of Cavite, Philippine Islands, party of the First
Part, hereinafter called the subscriber, and the "Silang Traffic
Company, Inc.," a corporation duly organized and existing by
virtue of and under the laws of the Philippine Islands, with its
principal office in the Municipality of Silang, Province of Cavite,
Philippine Islands, party of the Second Part, hereinafter called the
seller,
WITNESSETH:
That the subscriber promises to pay personally or by his duly
authorized agent to the seller at the Municipality of Silang,
Province of Cavite, Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine currency, as purchase
price of FIFTEEN (15) shares of capital stock, said purchase
price to be paid as follows, to wit: five (5%) per cent upon the
execution of the contract, the receipt whereof is hereby
acknowledged and confessed, and the remainder in installments
of five per cent, payable within the first month of each and every
quarter thereafter, commencing on the 1st day of July, 1935, with
interest on deferred payments at the rate of SIX (6%) per cent per
annum until paid.
That the said subscriber further agrees that if he fails to pay any
of said installment when due, or to perform any of the aforesaid
conditions, or if said shares shall be attached or levied upon by
creditors of the said subscriber, then the said shares are to revert
to the seller and the payments already made are to be forfeited in
favor of said seller, and the latter may then take possession,
without resorting to court proceedings.
The said seller upon receiving full payment, at the time and
manner hereinbefore specified, agrees to execute and deliver to
said subscriber, or to his heirs and assigns, the certificate of title
of said shares, free and clear of all encumbrances.
In testimony whereof, the parties have hereunto set their hands in
the Municipality of Silang, Province of Cavite, Philippine Islands,
this 30th day of March, 1935.
(Sgd.) JOSEFA NAVAL
SILANG TRAFFIC COMPANY, INC.
Subscriber
By (Sgd.) LINO GOMEZ
President.
(Exhibit 1. Notarial acknowledgment omitted.)
The agreements signed by the other petitioners were of the same date
(March 30, 1935) and in identical terms as the foregoing except as to the
number of shares and the corresponding purchase price. The petitioners
agreed to purchase the following number of shares and, up to April 30,
1937, had paid the following sums on account thereof:
Sofronio T. 8 shares P360
Bayla.......
Venancio 8 shares 375
Toledo........
Josefa 15 shares 675
Naval..............
Paz 15 shares 675
Toledo................
Petitioners' action for the recovery of the sums above mentioned is based
on a resolution by the board of directors of the respondent corporation on
August 1, 1937, of the following tenor:
A mocion sel Sr. Marcos Caparas y secundado por el Sr.
Alejandro Bayla, que para el bien de la corporacion y la pronta
terminacion del asunto civil No. 3125 titulado "Vicente F.
Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera
Instancia de Cavite, donde se gasto y se gastara no poca
cantidad de la Corporacion, se resolvio y se aprobo por la Junta
Directiva los siguientes:
(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el
3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se
haran por el Secretario Tesorero de la Corporacion a los
accionistas que habian tomado o suscrito nuevas acciones y que
se permitia a estos pagar 20% del valor de las acciones suscritas
en un año, con interes de 6% y el pago o jornal que se hara por
trimestre.
(b) Se dejara sin efecto, en vista de que aun no esta pagado todo
el valor de las 123 acciones, tomadas de las acciones no
 expedidas (unissued stock) de la Corporacion y que fueron (d) Permitir al Tesorero de la Corporacion para que devuelva a
suscritas por los siguienes: las personas arriba indicadas, las cantidades pagadas por las
123 acciones. (Exhibit A-1.)
Lino 10 Acciones
Gomez..................... The respondent corporation set up the following defenses: (1) That the
above-quoted resolution is not applicable to the petitioners Sofronio T.
Venancio 8 Acciones Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their
Toledo............. subscribed shares of stock had already automatically reverted to the
defendant, and the installments paid by them had already been forfeited";
Melchor P. 17 Acciones and (2) that said resolution of August 1, 1937, was revoked and
Benitez........ cancelled by a subsequent resolution of the board of directors of the
defendant corporation dated August 22, 1937.
Isaias 14 Acciones
Videña................. The trial court absolved the defendant from the complaint and declared
canceled (forfeited) in favor of the defendant the shares of stock in
Esteban 10 Acciones question. It held that the resolution of August 1, 1937, was null and void,
Velasco............ citing Velasco vs. Poizat (37 Phil., 802), wherein this Court held that "a
corporation has no legal capacity to release an original subscriber to its
Numeriano S. 15 Acciones capital stock from the obligation to pay for shares; and any agreement to
Aldaba.... this effect is invalid" Plaintiffs below appealed to the Court of Appeals,
which modified of the trial court as follows:
Inocencio 8 Acciones
Cruz.................
That part of the judgment dismissing plaintiff's complaint is
Josefa Naval 15 Acciones affirmed, but that part thereof declaring their subscription
.................. canceled is reversed. Defendant is directed to grant plaintiffs 30
days after final judgment within which to pay the arrears on their
Sofronio 8 Acciones subscription. Without pronouncement as to costs.
Bayla.................
Both parties appealed to this Court by petition and cross-petition
Dionisio 3 Acciones for certiorari. Petitioners insist that they have the right to recover the
Dungca............. amounts involved under the resolution of August 1, 1937, while the
respondent and cross-petitioner on its part contends that said amounts
y devolver a las personas arriba descritas toda la cantidad que estas have been automatically forfeited and the shares of stock have reverted
habian pagado por las 123 acciones. to the corporation under the agreement hereinabove quoted.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el
3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las
31 acciones del Treasury Stock, contra las 32 acciones del Sr.
Numeriano Aldaba, en la corporacion Northern Luzon
Transportation Co. y que se devuelva al Sr. Numeriano Aldaba
las 32 acciones mencionadas despues que el haya devuelto el
certificado de las 31 acciones de la Silang Traffic Co., Inc.
The parties litigant, the trial court, and the Court of Appeals have
interpreted or considered the said agreement as a contract of
subscription to the capital stock of the respondent corporation. It should
be noted, however, that said agreement is entitled "Agreement for
Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that
while the purchaser is designated as "subscriber," the corporation is
described as "seller"; that the agreement was entered into on March 30,
1935, long after the incorporation and organization of the corporation,
which took place in 1927; and that the price of the stock was payable in
quarterly installments spread over a period of five years. It also appears
that in civil case No. 3125 of the Court of First Instance of Cavite
mentioned in the resolution of August 1, 1937, the right of the corporation
to sell the shares of stock to the person named in said resolution
(including herein petitioners) was impugned by the plaintiffs in said case,
who claimed a preferred right to buy said shares.
Whether a particular contract is a subscription or a sale of stock is a
matter of construction and depends upon its terms and the intention of
the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition],
29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the
Unson case just cited, this Court held that a subscription to stock in an
existing corporation is, as between the subscriber and the corporation,
simply a contract of purchase and sale.
It seems clear from the terms of the contracts in question that they are
contracts of sale and not of subscription. The lower courts erred in
overlooking the distinction between subscription and purchase "A
subscription, properly speaking, is the mutual agreement of the
subscribers to take and pay for the stock of a corporation, while a
purchase is an independent agreement between the individual and the
corporation to buy shares of stock from it at stipulated price." (18 C. J. S.,
760.) In some particulars the rules governing subscriptions and sales of
shares are different. For instance, the provisions of our Corporation Law
regarding calls for unpaid subscription and assessment of stock (sections
37-50) do not apply to a purchase of stock. Likewise the rule that
corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for his shares, is inapplicable to a
contract of purchase of shares.
The next question to determine is whether under the contract between
the parties the failure of the purchaser to pay any of the quarterly
installments on the purchase price automatically gave rise to the
forfeiture of the amounts already paid and the reversion of the shares to
the corporation. The contract provides for interest of the rate of six per
centum per annum on deferred payments. It is also provides that if the
purchaser fails to pay any of said installments when due, the said shares
are to revert to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent corporation contends that
when the petitioners failed to pay the installment which fell due on or
before July 31, 1937, forfeiture automatically took place, that is to say,
without the necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing the refund of the
installments already paid was inapplicable to the petitioners, who had
already lost any and all rights under said contract. The contention is, we
think, untenable. The provision regarding interest on deferred payments
would not have been inserted if it had been the intention of the parties to
provide for automatic forfeiture and cancelation of the contract. Moreover,
the contract did not expressly provide that the failure of the purchaser to
pay any installment would give rise to forfeiture and cancelation without
the necessity of any demand from the seller; and under article 1100 of
the Civil Code persons obliged to deliver or do something are not in
default until the moment the creditor demands of them judicially or
extrajudicially the fulfillment of their obligation, unless (1) the obligation or
the law expressly provides that demand shall not be necessary in order
that default may arise, (2) by reason of the nature and circumstances of
the obligation it shall appear that the designation of the time at which that
thing was to be delivered or the service rendered was the principal
inducement to the creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract in question being
one of purchase and not subscription as we have heretofore pointed out,
we see no legal impediment to its rescission by agreement of the parties.
According to the resolution of August 1, 1937, the recission was made for
the good of the corporation and in order to terminate the then pending
civil case involving the validity of the sale of the shares in question
among others. To that rescission the herein petitioners apparently
agreed, as shown by their demand for the refund of the amounts they
had paid as provided in said resolution. It appears from the record that
said civil case was subsequently dismissed, and that the purchasers of
shares of stock, other than the herein petitioners, who were mentioned in
said resolution were able to benefit by said resolution. It would be an
unjust discrimination to deny the same benefit to the herein petitioners.
We may add that there is no intimation in this case that the corporation
was insolvent, or that the right of any creditor of the same was in any way
prejudiced by the rescission.
The attempted revocation of said rescission by the resolution of August
22, 1937, was invalid, it not having been agreed to by the petitioners.
Wherefore, the judgment of the court of appeals is hereby reversed and
another judgment will be entered against the defendant Silang Traffic
Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio
Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675,
and P675, respectively, with legal interest on each of said sums from May
28, 1938, the date of the filing of the complaint, until the date of payment,
and with costs in the three instances. So ordered.

Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.

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