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 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 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 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.

Luneta Motor v. A.D. Santos | Emerson

July 30, 1962
LUNETA MOTOR COMPANY, petitioner, vs.
A. D. SANTOS, INC., ET AL., respondents.
Dizon, J.:

SUMMARY: Double mortgage of a CPC owned by Concepcion, to secure separate loans he obtained from Luneta Motor and the
RFC. Both mortgagees were able to obtain foreclosures in their favor. The second mortgagee (the RFC) was the first one to
obtain a favorable court decision. Upon auction sale, the CPC was acquired by Santos, who was able to register the sale with the
Public Service Commission. Before his death, Santos transferred his rights in the CPC to A.D. Santos, Inc. The first mortgagee
(Luneta Motor) subsequently won its own foreclosure case and acquired the CPC thru public auction. When it attempted to
register the sale with the PSC, A.D. Santos, Inc. opposed, claiming inter alia that Luneta had no authority under its AOI to hold a
CPC and use it to operate a taxicab service. PSC and the SC agreed with A.D. Santos, the SC ruling that the authority vested by
Luneta’s AOI to deal in automobiles and auto parts, and to engage in the transportation of persons by water, does not
necessarily vest it with the power to operate a taxicab service – which is an entirely different line of business.

DOCTRINE: A corporation created under the Corporation Law may purchase, hold, etc., and otherwise deal in such real and
personal property as the purpose for which the corporation was formed may permit, and the transaction of its lawful business
may reasonably and necessarily require.
Note the test applied by the Court: Whether the purpose for which the corporation was organized and the transaction of its lawful
business reasonably and necessarily require the purchase and holding by it of a CPC x x x “such acquisition would be without
purpose and would have no necessary connection with the legitimate business [of the corporation].”

NATURE: Appeal of a decision of the Public Service Commission. Application for approval of sale of a CPC.

FACTS
 Nicolas CONCEPCION was the holder of a certificate of public convenience authorizing him to operate a taxicab
service of 27 units in Manila going to any point of Luzon.
 Dec. 31, 1941 – LUNETA Motor Co. made a loan in favor of Concepcion.
o The loan was evidenced by a promissory note and guaranteed by Placido ESTEBAN.
o To secure the loan, Concepcion constituted a chattel mortgage over the CPC in favor of Luneta.
 Later, Concepcion executed a second chattel mortgage of the CPC to secure a subsequent loan he obtained from
the Rehabilitation Finance Corporation (RFC).
o The Public Service Commission (PSC) approved this second mortgage, subject to the mortgage lien in favor
of Luneta.
 The CPC was later sold to Francisco Benitez, Jr., who in turn sold it to Redi Taxicab Co.
o Both sales were made with assumption of the mortgage to RFC.
o Both sales were also provisionally approved by the PSC, subject to the lien in favor of Luneta.
 Oct. 10, 1953 – Luneta filed a foreclosure action against Concepcion after the latter and his guarantor failed to pay the
1941 loan.
 While Luneta’s foreclosure case was pending, the RFC also filed an action to foreclose on the mortgage in its favor.
 RFC won that suit.
 Aug. 31, 1956 – As a result of the foreclosure in favor of RFC, the CPC was sold at public auction to Amador D.
SANTOS, for P24,010.
 Jan. 26, 1957 – The PSC approved the sale to Santos, subject to the mortgage lien in favor of Luneta.
 June 9, 1958 – CFI DECISION IN LUNETA FORECLOSURE CASE
o Concepcion held indebted to Luneta in the sum of P15,197.84, with 12% interest thereon from December 2,
1941 until full payment, plus other assessments
o Ordered the auction sale of the CPC
 Mar. 3, 1959 – The CPC was sold at public auction to Luneta. The Sheriff of Manila issued a certificate of sale in
favor of Luneta.
 Luneta filed an application for approval of the sale with the PSC.
 The application was opposed by A.D. SANTOS, Inc., to whom Santos transferred his rights and interests in the CPC
before he died.
o GROUNDS FOR OPPOSITION
1) under Luneta'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 A.D. Santos nor its predecessor Amador D. Santos inasmuch as neither of
them had been impleaded in the case;
3) what was sold to Luneta were only the 'rights, interest and participation' of Concepcion in the certificate
that had been granted to him which were no longer existing at the time of the sale."
 Oct. 18, 1960 – PSC DECISION
o denied approval of the sale to Luneta, on the ground that under its AOI it had no authority to operate a
taxicab service as a common carrier
o Luneta appeals this decision to the SC.

ISSUE (HELD): W/N the Articles of Incorporation of Luneta Motor authorizes it to hold a CPC and use it to operate as a taxicab
service (NO)

RATIO
 Corporation Law, Section 13(5): A corporation created thereunder may purchase, hold, and otherwise deal in such real
and personal property as the purpose for which the corporation was formed may permit, and the transaction of its
lawful business may reasonably and. necessarily require.
  The issue here is precisely whether the purpose for which Luneta was organized and the transaction of its
lawful business reasonably and necessarily require the purchase and holding by it of a CPC and thus give it
additional authority to operate thereunder as a common carrier by land.
 Luneta: Its corporate purposes are to carry on a general mercantile and commercial business. Its articles of
incorporation authorize it to:
o Operate and otherwise deal in and concerning automobiles and automobile accessories' business in all its
multifarious ramifications
o Operate, etc. and otherwise dispose of vessels and boats, etc,
o Own and operate steamships and sailing ships and other floating craft and deal in the same
o Engage in the Philippine Islands and elsewhere in the transportation of persons, merchandise and
chattels by water;
o All these are incidental to the transportation of automobiles.
 SC found nothing in the Corporation Law and the provisions of Luneta's articles of incorporation that could justify its
contention that it could operate as a taxicab service.
 To the contrary, the AOI is precisely the best evidence that Luneta has no authority at all to engage in the business of
land transportation and operate a taxicab service.
 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.
 If it could not thus engage in this 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 Luneta's legitimate business.

DISPOSITION: PSC decision affirmed.