Luneta Motor Company vs. A.D. Santos, Inc.

A corporation may acquire by purchase a certificate of public convenience only if the purpose for which it was organized and the transaction of its lawful business reasonably and necessarily require such acquisition; where the corporation's articles of incorporation authorize it to deal in automobiles and to transport persons by water but not to engage in land transportation, it may not acquire a certificate of public convenience to operate a taxicab service, that being an entirely different line of business.

Luneta Motor Company is a corporation organized under the Corporation Law, whose articles of incorporation authorize it to carry on a general mercantile and commercial business, to deal in automobiles and automobile accessories in all their multifarious ramifications, and to own and operate vessels and engage in the transportation of persons, merchandise, and chattels by water. Nicolas Concepcion held a certificate of public convenience, granted before the war, to operate a taxicab service of 27 units in the City of Manila and to any point in Luzon. To secure a loan from petitioner, Concepcion executed a chattel mortgage over this certificate in favor of Luneta Motor Company on December 31, 1941. A second mortgage on the same certificate was later constituted in favor of the Rehabilitation Finance Corporation (now Development Bank of the Philippines), which was approved by the Public Service Commission subject to petitioner's lien.

On December 31, 1941, Nicolas Concepcion executed a chattel mortgage over his certificate of public convenience — granted before the war to operate a taxicab service of 27 units in the City of Manila and to any point in Luzon — in favor of Luneta Motor Company to secure payment of a loan evidenced by a promissory note guaranteed by one Placido Esteban. Concepcion later obtained a subsequent loan from the Rehabilitation Finance Corporation (now Development Bank of the Philippines) and constituted a second mortgage on the same certificate, which the Public Service Commission approved subject to petitioner's mortgage lien.

The certificate was subsequently sold to Francisco Benitez, Jr., who resold it to Rodi Taxicab Company. Both sales were made with assumption of the RFC mortgage and were provisionally approved by the Commission, again subject to petitioner's lien. Meanwhile, petitioner filed Civil Case No. 20853 in the Court of First Instance of Manila to foreclose its chattel mortgage, as Concepcion and his guarantor had failed to pay their overdue account. While that case was pending, the RFC also instituted foreclosure proceedings on its second chattel mortgage; the certificate was sold at public auction to Amador D. Santos for ₱24,010.00 on August 31, 1956. Santos immediately applied for and obtained Commission approval of the sale on January 26, 1957, subject to petitioner's lien.

On June 9, 1958, the CFI Manila rendered judgment in Civil Case No. 20853, as amended on August 1, 1958, adjudging Concepcion indebted to petitioner in the sum of ₱15,197.84 with 12% interest from December 2, 1941 until full payment, plus other assessments, and ordering the certificate sold at public auction. Accordingly, on March 3, 1959, the certificate was sold at public auction to petitioner, and the Sheriff of Manila issued the corresponding certificate of sale six days later. Petitioner then filed its application with the Commission for approval of the sale. Before his death, Amador D. Santos had sold and transferred all his rights and interests in the certificate to respondent A.D. Santos, Inc., which opposed petitioner's application.

After petitioner rested its case, respondent A.D. Santos, Inc. filed a motion to dismiss on three grounds: (a) under petitioner's articles of incorporation, it was not authorized to engage in the taxicab business or operate as a common carrier; (b) the decision in Civil Case No. 20853 did not affect oppositor or its predecessor, neither having been impleaded; and (c) what was sold to petitioner were only the "rights, interests and participation" of Concepcion in the certificate, which were no longer existing at the time of the sale. The Commission, on October 18, 1960, sustained the first ground, ruling that petitioner's articles of incorporation gave it no authority to engage in the taxicab business or operate as a common carrier and that, as a result, it could not acquire by purchase the certificate of public convenience in question.

• Corporate Authority to Acquire: Petitioner argued that, in accordance with the Corporation Law and its articles of incorporation, it could acquire by purchase the certificate of public convenience in question, maintaining inferentially that after acquiring the certificate it could operate a taxicab business or act as a common carrier by land.
• Scope of Corporate Purposes: Petitioner contended that its corporate purposes — carrying on a general mercantile and commercial business, dealing in automobiles and automobile accessories in all their multifarious ramifications, and engaging in the transportation of persons, merchandise, and chattels by water — were broad enough to encompass the acquisition and operation of a taxicab service certificate.

• Lack of Corporate Authority: Respondent A.D. Santos, Inc. countered that under petitioner's articles of incorporation, it was not authorized to engage in the taxicab business or operate as a common carrier, and therefore could not acquire the certificate of public convenience by purchase.
• Non-Binding Judgment: Respondent argued that the decision in Civil Case No. 20853 did not affect oppositor or its predecessor Amador D. Santos, since neither had been impleaded in the case.
• Extinction of Rights Sold: Respondent maintained that what was sold to petitioner were only the "rights, interests and participation" of Nicolas Concepcion in the certificate, which were no longer existing at the time of the sale.

• Corporate Capacity to Acquire Certificate of Public Convenience: Whether a corporation whose articles of incorporation authorize it to deal in automobiles and automobile accessories and to transport persons by water, but not to engage in land transportation, may acquire by purchase a certificate of public convenience to operate a taxicab service.

• Corporate Capacity to Acquire Certificate of Public Convenience: No. A corporation may acquire by purchase a certificate of public convenience only if the purpose for which it was organized and the transaction of its lawful business reasonably and necessarily require such acquisition; since petitioner's articles of incorporation did not authorize it to engage in land transportation, it could not acquire a certificate to operate a taxicab service.

• Corporate Capacity to Acquire Certificate of Public Convenience: Section 13(5) of the Corporation Law permits a corporation to purchase, hold, and otherwise deal in such real and personal property as the purpose for which the corporation was formed may permit, and as the transaction of its lawful business may reasonably and necessarily require. While a certificate of public convenience is liable to execution and may be acquired by purchase, the decisive question is whether the corporation's corporate purposes and lawful business reasonably and necessarily require the purchase and holding of such a certificate, thereby giving it authority to operate thereunder as a common carrier by land. Petitioner's articles of incorporation authorized it to deal in automobiles and automobile accessories and to engage in the transportation of persons by water, but contained no authority to engage in land transportation. The authority to deal in automobiles and to transport persons by water does not imply authority to engage in land transportation, which is an entirely different line of business. Because petitioner could not lawfully engage in the taxicab business, the acquisition of a certificate of public convenience to operate a taxicab service would be without purpose and would have no necessary connection with petitioner's legitimate business. The other incidental questions raised by petitioner were deemed unnecessary to resolve in light of this conclusion.

• Doctrine of Corporate Capacity and Ultra Vires Acquisition — Under Section 13(5) of the Corporation Law, a corporation may purchase, hold, and otherwise deal in such real and personal property as the purpose for which it was formed may permit, and as the transaction of its lawful business may reasonably and necessarily require. A corporation cannot acquire a certificate of public convenience to operate a particular public service if its articles of incorporation do not authorize it to engage in that line of business; the acquisition would be without purpose and would have no necessary connection with its legitimate business. The authority to deal in automobiles and automobile accessories and to transport persons by water does not extend to land transportation, which is an entirely different line of business.

• "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." — This passage articulates the ratio decidendi, drawing the boundary between the corporate powers petitioner possessed under its articles of incorporation and the land transportation business it sought to enter through acquisition of the certificate.

• "If it could not thus engage in the line of business, it follows that it may not acquire any certificate of public convenience 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." — This formulation states the logical consequence of the ultra vires doctrine as applied to certificates of public convenience: inability to operate the business renders acquisition of the certificate impermissible.

• Raymundo vs. Luneta Motor Co., 58 Phil. 889 — Cited for the proposition that a certificate of public convenience granted to a public operator is liable to execution and may be acquired by purchase. The Court acknowledged this principle but distinguished it by noting that the present case involved the further question of whether the acquiring corporation could hold and operate under the certificate given its corporate purposes.

• Section 13(5), Corporation Law — This provision permits a corporation created under the Corporation Law to purchase, hold, and otherwise deal in such real and personal property as the purpose for which the corporation was formed may permit, and as the transaction of its lawful business may reasonably and necessarily require. The Court applied this provision to determine whether petitioner's corporate purposes and lawful business reasonably and necessarily required the acquisition of a certificate of public convenience to operate a taxicab service, concluding that they did not.

Bengzon, C.J., Padilla, Concepcion, Barrera, Paredes, and Makalintal, JJ., concurred. Regala, J., took no part.