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095.

Luneta Motor Company v AD Santos, Inc et al


July 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 Concepcions 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 Motors 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 2
nd

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 sales approval with the PSC, but this was opposed by AD
Santos, Inc., claiming that under Luneta Motors Articles of Incorporation, it was not authorized to engage in the taxicab
business or operate as a common carrier. PSC denied Luneta Motors 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 Motors 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 Motors 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 2
nd
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 Motors 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 2
nd
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 Motors application.
In the course of hearing, AD Santos Inc filed a motion to dismiss on the grounds that:
1. Under Luneta Motors 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 Motors 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 are
o 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 petitioners
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