Chapter 5: Promoters’ Contracts Prior to Incorporation o petitioner was rendering efficient service before its electric plant was
service before its electric plant was burned, and
25 SCRA 285 - RIZAL LIGHT & ICE CO., INC. vs. PSC and Morong Elec. Co. (1968) therefore, being a prior operator its investment should be protected and no new ZALDIVAR, J.: party should be granted a franchise and certificate of public convenience and necessity to operate an electric service in the same locality. PSC granted Morong Electric’s application for a CPCN. Rizal Light, a prior operator contested this decision stating that such grant was invalid considering SEC issued Morong ISSUE with HOLDING Electrics certificate of incorporation months after the decision. SC held that while a WON the franchise granted to Morong Electric is valid despite the fact that such was franchise cannot take effect until the grantee corporation is organized, the franchise may, granted before Morong Electric’s certificate of incorporation was issued by the SEC – nevertheless, be applied for before the company is fully organized; a grant of a franchise is VALID valid although the corporation is not created until afterwards. Petitioner: until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of incorporation by the SEC, it cannot enter into any contract as a corporation. The franchise was granted to Morong Electric when it was not yet in esse DOCTRINE is null and void McQuillin: “The fact that a company is not completely incorporated at the time the grant is SC: Petitioner's contention that Morong Electric did not yet have a legal personality made to it by a municipality to use the streets does not, in most jurisdictions, affect the when a municipal franchise was granted to it is correct. The juridical personality and validity of the grant. But such grant cannot take effect until the corporation is organized…” legal existence of Morong Electric began only when its certificate of incorporation was issued by the SEC. Fletcher: “While a franchise cannot take effect until the grantee corporation is o Before that date, or pending the issuance of said certificate of incorporation, the organized, the franchise may, nevertheless, be applied for before the company is incorporators cannot be considered as de facto corporation, but the fact that fully organized. A grant of a street franchise is valid although the corporation is not Morong Electric had no corporate existence on the day the franchise was created until afterwards.” granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of incorporation and then accepted the Thompson (explains reason for these rules^): “…an ordinance granting a privilege to a franchise in accordance with tshe terms and conditions thereof. This view is corporation is not void because the beneficiary of the ordinance is not fully organized at the sustained by eminent American authorities (see doctrine) time of the introduction of the ordinance. It is enough that organization is complete prior to Thus, the incorporation of Morong Electric on October 17, 1962 and its acceptance of the passage and acceptance of the ordinance. The reason is that a privilege of this the franchise as shown by its action in prosecuting the application filed with the character is a mere license to the corporation until it accepts the grant and complies Commission for the approval of said franchise 1) perfected a contract between the with its terms and conditions.” respondent municipality and Morong Electric and 2) cured the deficiency pointed out by the petitioner in the application of Morong EIectric. xxx The conclusion 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. [IMPT] The ruling that a corporation should have a full and complete organization and vs. Teodoro Sandiko wherein Court held that a corporation should have a full and existence as an entity before it can enter into any kind of a contract or transact any complete organization and existence as an entity before it can enter into any kind of a business is NOT ABSOLUTE. Under American jurisprudence, a contract made by the contract or transact any business. promoters of a corporation on its behalf may be adopted, accepted or ratified by the o this Court did not say in that case that the rule is absolute or that under no corporation when organized. circumstances may the acts of promoters of a corporation be ratified or accepted by the corporation if and when subsequently organized o there are exceptions such as the fact that American courts generally hold that a FACTS contract made by the promoters of a corporation on its behalf may be adopted, 1. Morong Electric applied for a CPCN with the PSC to provide for electric service in accepted or ratified by the corporation when organized Morong, Rizal. 2. In May 1962, Morong Electric was granted a franchise. PSC found that “Morong DISPOSITIVE PORTION Electric is a corporation duly organized and existing under the laws of the Philippines, PSC decision affirmed. 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” DIGESTER: MTR 3. It was only on October 17 of the same year that the SEC issued Morong Electric’s certificate of incorporation. 4. Rizal Light, a prior operator, contends that Morong should not have been granted the CPCN because: o it did not have a corporate personality at the time it was granted a franchise and when it applied for said certificate o it is not financially capable of undertaking an electric service 1