63. Rizal Light & Ice Co., Ic v.

Municipality of Morong
GR No. L-20993 & L-21221 | 23 September 1968 | Zaldivar, J.
Apolinario | Topic: Persons Involved in Incorporation––Promoters
Case Summary: Rizal Light & Ice Co. is a domestic corporation granted by the PSC a CPCN for the installation,
operation, and maintenance of an electric light, heat, and power service in the Municipality of Morong, Rizal. Mun. of
Morong filed a petition with PSC formally asking the latter to revoke Petitioner’s CPCN and to forfeit its franchise on the
grounds that it failed to comply with the conditions of the certificate and franchise. Upon various inspections conducted
and hearings held, PSC found that Petitioner had failed to comply with the directives contained in its letters and had
violated the conditions of its CPCN as well as the rules and regulations of PSC. Accordingly, it ordered the cancellation
and revocation of Petitioner’s CPCN and the forfeiture of its franchise. Eight days before Petitioner’s MR was filed,
Morong Electric, having been granted a municipal franchise on May 6, 1962 by Mun. of Morong to install, operate, and
maintain an electric heat, light, and power service in Morong, filed with the PSC an application for a CPCN. Petitioner
filed an MTD on the ground that Morong Electric had no legal personality when it filed its application on Sept. 10,
because its certificate of incorporation was issued by SEC only Oct. 17, 1962. PSC denied the MTD on the premise that
Morong Electric was a de facto corporation. Later, PSC approved the application of Morong Electric and issued a CPCN
in its favor.

SC held that Petitioner’s contention that Morong Electric did not yet have a legal personality at the time it was granted a
franchise is correct. Morong Electric’s juridical personality and legal existence began only on Oct. 17, 1962 when its
certificate of incorporation was issued by SEC. Prior to that date, the incorporators CANNOT be considered as de facto
corporation. BUT the fact that Morong Electric had no corporate existence on the said date did not render the franchise
invalid because Morong Electric later obtained its certificate of incorporation and then accepted the franchise in
accordance with the terms and conditions thereof. The incorporation of Morong Electric and its acceptance of the
franchise not only perfected a contract between the Mun. of Morong and Morong Electric, but also cured the deficiency
in the application of Morong Electric. SC noted that the ruling in the case at bar is not incompatible with the holding in
Cagayan Fishing Development Co. Inc v. Teodoro Sandiko, where SC 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. However, the rule is not absolute. The acts of promoters of a corporation, in some instances, may be
ratified or accepted by the corporation if and when subsequently organized. There are exceptions. SC noted that
American courts generally hold that a contract made by the promoters of a corporation on its behalf may be
adopted, accepted, or ratified by the corporation when organized.
Respondents: GR L-20993 – Municipality of Morong, Rizal and Public Service Commission; GR L-21221 – Public
Service Commission and Morong Electric, Inc. [same petitioner in both cases]

Facts:
1. These two cases, being, interrelated, are decided together.
2. Rizal Light & Ice Co. is a domestic corporation granted by the PSC a CPCN for the installation,
operation, and maintenance of an electric light, heat, and power service in the Municipality of Morong,
Rizal.
3. Dec. 19, 1956 – PSC required Petitioner to appear before it to show cause why it should not be
penalized for (1) violation of the conditions of is CPCN and the regulations of PSC, and (2) for failure to
comply with the directives to raise its service voltage and maintain them within the limits prescribed in
Revised Order No. 1 of PSC and to acquire an install a kilowatt meter to indicate the load in kilowatts at
any particular time of the generating unit.
a. Petitioner failed to appear at the hearing so PSC ordered the cancellation and revocation of
Petitioner’s CPCN and the forfeiture of its franchise.
b. Petitioner moved for reconsideration on the ground that its manager was not aware of the said
hearing. The Municipality of Morong opposed this motion, alleging that Petitioner has not
rendered efficient and satisfactory service and has not complied with the requirements of PSC
to improve its service.
c. The MR was set for hearing. PSC found that Petitioner’s failure to appear, the sole basis of the
revocation of CPCN, was really due to the illness of its manager.
d. PSC set aside the order of revocation. Municipality filed an MR, which PSC denied.
4. [CASE 1] Municipality of Morong filed a petition with PSC formally asking the latter to revoke
Petitioner’s CPCN and to forfeit its franchise on the grounds that it failed to comply with the
conditions of the certificate and franchise.
 a. Many inspections were conducted on Petitioner’s electric plant and installations (April 15, 1958;
Sept. 18, 1959; July 12-13, 1960; June 21-24, 1961)
b. The inspection on June 1961 was made upon Petitioner’s request, who also manifested during
the hearing that improvements have been made on its service since the inspection on July
1960, and that on the basis of the inspection report to be submitted [report based on the June
1961 inspection], it would agree to the submission of the case for decisions without further
hearing.
c. Case was called for hearing on July 1961 where Petitioner failed to appear. The Municipality
was then allowed to present its documentary evidence and thereafter the case was submitted
for decision.
i. Petitioner wanted to reopen the case because it was not allegedly furnished with a copy
of the June 1961 inspection report. PSC granted it 10 days to reply. Petitioner failed to
file the reply so PSC proceeded to decide the case.
5. PSC found that Petitioner had failed to comply with the directives contained in its letters and had
violated the conditions of its CPCN as well as the rules and regulations of PSC.
a. It held that Petitioner cannot render efficient, adequate, and satisfactory electric service required
by its CPCN, and that it is against public interest to allow it to continue its operation.
b. Accordingly, PSC ordered the cancellation and revocation of Petitioner’s CPCN and the
forfeiture of its franchise.
6. [CASE 2] Sept. 10, 1962 or eight days before Petitioner’s MR was filed, Morong Electric, having
been granted a municipal franchise on May 6, 1962 by Mun. of Morong to install, operate, and
maintain an electric heat, light, and power service in Morong, filed with the PSC an application
for a CPCN.
a. Petitioner opposed the application alleging that it is still a holder of a CPCN to operate an
electric light, heat, and power in Morong and that the approval of the application would only
cause ruinous and wasteful competition.
b. This opposition, though dated Oct. 6, was received by PSC on Nov. 12, 1962 or 24 days after
order of general default was issued in open court when the application was first called for a
hearing.
c. Petitioner then filed a motion to lift the said order of default.
i. Before the motion could be resolved, Petitioner filed another motion asking of the
dismissal of the application upon the ground that Morong Electric had no legal
personality when it filed its application on Sept. 10, because its certificate of
incorporation was issued by SEC only Oct. 17, 1962.
d. PSC denied the MTD on the premise that Morong Electric was a de facto corporation.
7. The case was heard [case 2] and PSC found that there was an absence of electric service in Morong
and that Morong Electric, a Filipino-owned corporation duly organized and existing under PH laws, has
the financial capacity to maintain said service.
a. These circumstances, considered together with the denial of Petitioner’s MR in Case 1, such
that as far as the PSC is concerned, Petitioner’s CPCN was already revoked and cancelled.
b. PSC approved the application of Morong Electric and issued a CPCN in its favor.
8. For GR L-20993, Petitioner wants to set aside the orders of PSC cancelling and revoking its CPCN and
forfeiting its franchise.
a. For GR L-21221, Petitioners wants to review and set aside PSC’s granting of CPCN to Morong
Electric to operate an electric light, heat, and power services in the Municipality of Morong.

Issue/s and Holding:

[topic is in the second case, the first case is about public utilities]

W/N the application of Morong Electric should not have been approved because it did not have a
corporate personality at the time it was granted a franchise and when it applied for the CPCN? – NO.
● Before any CPC may be granted, 3 requisites must be complied with:
 (1) Applicant must be a PH citizen or a corporation or co-partnership, association, or joint-stock
company, constituted and organized under the laws of the Philippines, 60% at least of the stock
or paid-up capital of which belongs entirely to Filipino citizens.
(2) Applicant must be financially capable; and
(3) Applicant must prove that the operation of the public service proposed and the authorization to
do business will promote public interest in a proper and suitable manner.

● Petitioner: since a franchise is a contract, at least 2 competent parties are necessary to the execution
thereof, and parties are not competent except they are in being. Hence, until a corporation has come
into being, in this jurisdiction, by the issuance of a certificate of incorporation by SEC, it CANNOT enter
into any contract as a corporation.
○ When the franchise was granted to Morong Electric on May 6, 1962, it was not yet in esse.
Hence, the said franchise is null and void, and cannot be the subject of PSC’s consideration.
[See fact 6.c.i]
● Morong Electric: It was a corporation de facto1 at the time the franchise was granted. Hence, it was
not incapacitated to enter into any contract or to apply for and accept a franchise.

● Supreme Court: Petitioner’s contention that Morong Electric did not yet have a legal personality at the
time it was granted a franchise is correct.
○ Morong Electric’s juridical personality and legal existence began only on Oct. 17, 1962 when its
certificate of incorporation was issued by SEC. Prior to that date, the incorporators CANNOT be
considered as de facto corporation.
○ BUT the fact that Morong Electric had no corporate existence on the said date did not render
the franchise invalid because Morong Electric later obtained its certificate of incorporation and
then accepted the franchise in accordance with the terms and conditions thereof.
○ Many American authorities support this view:
■ McQuillin: 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. xxx
ordinance granting the franchise may be presented before the corporation grantee is
fully organized, where the organization is completed before the passage and
acceptance."
■ Thompson: 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.
● The incorporation of Morong Electric and its acceptance of the franchise as shown by its action in
prosecuting the application filed with PSC, not only perfected a contract between the Mun. of Morong
and Morong Electric, but also cured the deficiency pointed out by Petitioner in the application of Morong
Electric.
○ The efficacy of the franchise arose only upon its approval by the PSC on March 14, 1963
because Sec. 16(b) of CA No. 146 provides that the PSC is empowered to approve any
franchise or privilege granted by a political subdivision of the Philippines.
● SC noted that the ruling in the case at bar is not incompatible with the holding in Cagayan Fishing
Development Co. Inc v. Teodoro Sandiko, where SC 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.
○ In the said case, SC did NOT say that the rule is absolute or that under no circumstances may
the acts of promoters of a corporation be ratified or accepted by the corporation if and when
subsequently organized.
○ [DOCTRINE] There are exceptions. SC noted that American courts generally hold that a
contract made by the promoters of a corporation on its behalf may be adopted, accepted, or
ratified by the corporation when organized.

1 Corporation de facto – (1) a valid law under which the corporation is organized; (2) an attempt in good faith to incorporate; and (3) an
assumption of corporate powers.
On Morong Electric’s financial capability
● SC held that in determining the same, PSC made a factual determination that the court has said, in a
number of cases, it will not disturb unless patently unsupported by evidence.

Ruling: PSC decisions are AFFIRMED.

GR L-20993
1. Petitioner cannot question the authority of the division chief who conducted the hearings in Case 1 for the first
time on appeal. The requirement under Sec. 32 that the PSC can only authorize a division chief to hear and
investigate a case if he is a lawyer is a mere procedural rule and not a jurisdictional point. Hence, while the
division chief in this case is indeed not a lawyer, Petitioner cannot raise the same as a defense as it did not made
its timely objection.
2. Petitioner contended that PSC based its decision on insufficient and untrustworthy evidence. SC held that in
reviewing the decision of PSC, it is not required to examine the proof de novo and determine for itself whether or
not the preponderance of evidence really justifies the decision. It will not substitute its discretion for that of the
PSC on questions of fact and will not interfere in the latter’s decision unless it clearly appears that there is no
evidence to support it.
3. The protection of investment rule [rule that when there is a prior operator, a second one should not be granted a
CPC to operate the same service] is not absolute for nobody has exclusive right to secure a franchise or a CPC.
Where it has been shown that the Petitioner had failed to render adequate, sufficient and satisfactory service and
had violated the important conditions of its certificate as well as the directives of PSC, the rule cannot apply.