Chapter 5: Promoters’ Contracts Prior to Incorporation 25 SCRA 285 - RIZAL LIGHT & ICE CO., INC. vs. PSC and Morong Elec. Co. (1968) ZALDIVAR, J.: PSC granted Morong 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 Electrics certificate of incorporation months after the decision. SC held that 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 franchise is valid although the corporation is not created until afterwards.
DOCTRINE McQuillin: “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…” organized …” Fletcher: “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.”
Thompson (explains reason for these rules^): “…an “… 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.” conditions. ”
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petitioner was rendering efficient service before its electric plant was burned, and 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.
ISSUE with HOLDING WON the franchise granted to Morong Electric is valid despite the fact that such was granted before Morong Electric’s certificate of incorporation was issued by the SEC – SEC – VALID VALID Petitioner: until 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 is null and void SC: Petitioner's contention that Morong Electric did not yet have a legal personality when a municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric began only when its certificate of incorporation was issued by the SEC. Before that that date, or pending the issuance of said certificate of incorporation, the o incorporators cannot be considered as de facto corporation, 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, invalid , because later Morong Electric obtained its certificate of incorporation and then accepted the franchise in accordance with tshe terms and conditions thereof. This view is sustained by eminent American authorities (see doctrine) Thus, 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 1) perfected a contract between the respondent municipality and Morong Electric and 2) cured the deficiency pointed out by the petitioner in the application of Morong EIectric. 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. vs. Teodoro Sandiko wherein 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. this Court did not say say in that case that the rule is absolute or that under no o circumstances may the acts of promoters of a corporation be ratified or accepted by the corporation if and when subsequently organized there are exceptions such as the fact that American courts generally hold that a o contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when organized
xxx [IMPT] The ruling that a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a c ontract or transact any business is NOT ABSOLUTE. Under American jurisprudence, a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when organized.
FACTS 1. Morong Electric applied applied for a CPCN with the PSC PSC to provide for electric electric service in Morong, Rizal. 2. In May May 1962, Morong Electric Electric was granted a franchise. franchise. PSC 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 s ervice in Morong, Rizal” Rizal” 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, operator, contends that Morong should should not have have been granted the CPCN because: it did not have a corporate personality at the time time it was granted a franchise and o
DISPOSITIVE PORTION PSC decision affirmed.
DIGESTER: MTR
