095. Luneta Motor Company v AD Santos, Inc et alJuly 31, 1962

Dizon, J.TOPIC: Powers of Corporations; Implied and Incidental

SV: A CPC was originally granted to Concepcion. This CPC was made the subject of a chattel mortgage to secure the payment of Concepcion’s loan to Luneta Motor. Subsequently, a second mortgage was executed over the same CPC in favor of RFC. The CPC was later sold to Benitez, then to Rodi Taxicab, and both sales were made with assumption of mortgage in favor of RFC, subject to Luneta Motor’s lien. Luneta Motor filed an action for foreclose the mortgage for failure of Concepcion to pay his account. While this was pending, RFC also instituted foreclosure proceedings on its 2nd chattel mortgage, and the CPC was sold in favor of Amador Santos, whose application for approval of sale was immediately granted by PSC. In the action for foreclosure filed by Luneta, the CFI ordered the CPC to be sold, and eventually Luneta bought the CPC. Luneta Motor applied for the sale’s approval with the PSC, but this was opposed by AD Santos, Inc., claiming that under Luneta Motor’s Articles of Incorporation, it was not authorized to engage in the taxicab business or operate as a common carrier. PSC denied Luneta Motor’s application.

Under the Corporation Law, , a corporation may purchase, hold, etc., and otherwise deal in such real and personal property is the purpose for which the corporation was formed may permit, and the transaction of its lawful business may reasonably and necessarily require. Luneta Motor’s Corporate purposes basically allow it to operate and otherwise deal in automobiles and automobile accessories. Although it may also engage in the transportation of persons by water, this does not mean that it may engage in the business of land transportation, which is an entirely different line of business. Contrary to Luneta Motor’s contentions, its Articles of Incorporation is precisely the best evidence that it has no authority at all to engage in the business of land transportation and operate a taxicab service. As such it follows that it may not acquire an CPC to operate a taxicab service.

FACTS: A certificate of public convenience (CPC) was granted before the war to Nicolas Concepcion to operate a taxicab

service of 27 units in the City of Manila and therefrom to any point in Luzon. Concepcion contracted a loan from Luneta Motor and this was evidenced by a promissory note executed by him and

guaranteed by Placido Esteban. o To secure payment of this note, Concepcion executed a chattel mortgage covering the CPC in favor of Luneta

Motors Concepcion contracted a subsequent loan from Rehabilitation Finance Corporation (RFC; now known as DBP), and

this was secured by a second mortgage over the same CPC.o This 2nd mortgage was approved by the Public Service Commission (PSC), subject to the mortgage lien in

favor of Luneta Motor The CPC was later sold to Francisco Benitez, Jr. who resold it to Rodi Taxicab Company.

o Both sales were made assumption of the mortgage in favor of RFC, and were also approved provisionally by the Commission, subject to Luneta Motor’s Lien.

Petitioner filed an action to foreclose the chattel mortgage in view of the failure of Concepcion and his guarantor to pay their overdue account.

o While this case was pending, RFC also instituted foreclosure proceedings on its 2nd chattel mortgage. As of the decision in its favor therein rendered, the CPC was sold at public auction in favor of Amador D. Santos for P24,010.00.

o Santos immediately applied with the Commission for the approval of the sale, and the same was approved, subject to the mortgage lien in favor of Luneta Motor.

[CFI] rendered judgment, adjudging Concepcion indebted to Luneta Motor in the sum of P15,197.84 with 12% interest thereon from December 2, 1941 until full payment, plus other assessments.

o CFI ordered the the CPC subject of the chattel mortgage be sold at a public auction.o Said certificate was eventually sold to Luneta Motor, and after 6 days, the Sheriff of the City of Manila issued

the corresponding certificate of sale. o Thereupon, Luneta Motor filed the application for the approval of the sale. o In the meantime, before he died, Amador Santos sold and transferred all his rights and interests in the CPC

in favor of AD Santos, Inc., who opposed Luneta Motor’s application. In the course of hearing, AD Santos Inc filed a motion to dismiss on the grounds that:

1. Under Luneta Motor’s Articles of Incorporation, it was not authorized to engage in the taxicab business or operate as a common carrier;

2. The CFI decision did not affect AD Santos Inc or its predecessor inasmuch as neither of them had been impleaded into the case;

3. What was sold to Luneta Motor were only the "rights, interests and participation" of Nicolas Concepcion in the certificate that had been granted to him which were no longer existing at the time of the sale.

[PSC] rendered the decision dismissing Luneta Motor’s application for approval of the sale in its favor, sustaining the first ground (petitioner is not authorized in its Art. of Inc.) and ruling that as a result, it could not acquire by purchase the CPC.

o Luneta Motor appeals , claiming that in accordance with the Corporation Law and its articles of incorporation, it can acquire by purchase the certificate of public convenience in question, maintaining inferentially that, after acquiring said certificate, it could make use of it by operating a taxicab business or operate is a common carrier by land.

ISSUE: Under Corporation Law and its Articles of Incorporation, could Luneta Motor acquire the CPC by purchase and thereafter hold the certificate and operate thereunder as a common carrier by land? (NO) Under Section 13 (5) of the Corporation Law, a corporation created thereunder may purchase, hold, etc., and

otherwise deal in such real and personal property is the purpose for which the corporation was formed may permit, and the transaction of its lawful business may reasonably and necessarily require.

Petitioner Luneta Motor says: Its corporate purposes areo to carry on a general mercantile and commercial business, etc., and that it is authorized in its articles of

incorporation to operate and otherwise deal in and concerning automobiles and automobile accessories' business in all its multifarious ramification and

o to operate, etc., and otherwise dispose of vessels and boats, etc., and to own and operate steamship and sailing ships and other floating craft and deal in the same and engage in the Philippine Islands and elsewhere in the transportation of persons, merchandise and chattels by water;

o all this incidental to the transportation of automobiles Court said that nothing in the legal provision and provisions in its Articles of Incorporation could justify petitioner’s

contention. o To the contrary, they are precisely the best evidence that it has no authority at all to engage in the business

of land transportation and operate a taxicab service.o That it may operate and otherwise deal in automobiles and automobile accessories; that it may engage in

the transportation of persons by water does not mean that it may engage in the business of land transportation — an entirely different line of business.

o If it could not thus engage in the line of business, it follows that it may not acquire an CPC to operate a taxicab service, such as the one in question, because such acquisition would be without purpose and would have no necessary connection with petitioner's legitimate business.

Appealed decision AFFIRMED. Digest by Krys