Rizal Light & Ice Co., Inc. v.

Public Service Commission (NAME) RULING: Petition DENIED

September 28, 1968 | Zaldivar, J. | Contracts prior to incorporation
PETITIONER: Rizal Light & Ice Co., Inc.
RESPONDENTS: Public Service Commission and Morong Electric Co., Inc.,
SUMMARY: When Rizal Light’s plant burned down, Rizal province then had a
shortage in power. This is when Morong came into the picture and applied for
and was subsequently granted the authority to operate power service. Rizal
Light opposed as competitor. More importantly, it alleged that at the time the
franchise was granted to Morong, it had no personality, hence capacity, to enter
a contract. The SC held that the lack of personality does not render the grant
invalid. Its efficacy is merely suspended. In any case, the defect was cured when
it received the certificates of incorporation and public convenience from SEC
and PSC respectively
DOCTRINE: The fact that a company is not completely incorporated at the
time the grant is made does not, in most jurisdictions, affect the validity of the
grant. However, such grant cannot take effect until the corporation is organized.
FACTS:
1. When Rizal Light’s plant got burned down, there was power shortage on
Rizal particularly in Morong.
2. Thereafter, Morong Electric, prior to its incorporation, was granted by the
Provincial Board of Rizal, on May 6, 1962, a municipal franchise to operate
electric light, heat, and power service as at that time, there was an absence
of electric service in Morong, Rizal.
3. Having been granted with a municipal franchise, Morong Electric Co. then
filed an application for certificate of public convenience with the Public
Service Commission.
4. Rizal Light opposed the grant of a franchise to Morong Electric. According
to it, it was already rendering efficient service before its plant got burned.
More importantly, at the time the grant was given to Morong Electric
on May 6, 1962, it was still not incorporated, hence it had no
personality; having acquired the same only on October 17, 1962 when
the SEC issued Morong’s certificate of incorporation. Having no
personality then, it could not have been a competent party to enter into
a contract which in this case is the grant of the franchise to Morong
Electric.
5. About a year later, or on March 13, 1963, the PSC issued the
certificate of public convenience
RATIO:
1. Rizal Light’s argument that Morong Electric did not have yet the legal
personality when the franchise was granted to it was correct.
2. However, the fact that Morong Electric had no corporate existence on the
day the franchise was granted does not render the franchise invalid, because
later Morong Electric obtained its certificate of incorporation and then
accepted the franchise.
3. Eminent American authorities on this matter, were quoted.
a. McQuillin - The fact that a company is not completely
incorporated at the time the grant is made does not, in most
jurisdictions, affect the validity of the grant. However, such grant
cannot take effect until the corporation is organized.
b. 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.
c. Thompson – The grant of a privilege to a corporation is not void
just because the beneficiary of the ordinance is not fully organized.
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.
4. Hence, the incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise not only perfected a contract, but also cured the
deficiency pointed by Rizal Light. The efficacy, however, of the franchise
arose only upon the approval of the PSC on March 13, 1963.

ISSUE/s:
1. Whether Morong Electric can enter into a contract prior to its incorporation
– YES