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 Lunetas 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 Lunetas 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
transportationan 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.