G.R. No. 88404 – 268 Phil. 784 – 190 SCRA 717 – Mercantile Law – Corporation Law – Corporate Fiction – Franchise – Right of Succession
In 1958, Felix Alberto & Co., Inc (FACI) was granted by Congress a franchise to build radio stations (later construed as to include telephony). FACI later changed its name to Express Telecommunications Co., Inc. (ETCI). In 1987, ETCI was granted by the National Telecommunications Commission a provisional authority to build a telephone system in some parts of Manila. Philippine Long Distance Telephone Co. (PLDT) opposed the said grant as it avers, among others, that ETCI is not qualified because its franchise has already been invalidated when it failed to exercise it within 10 years from 1958; that in 1987, the Albertos, owners of more than 40% of ETCI’s shares of stocks, transferred said stocks to the new stockholders (Cellcom, Inc.? – not specified in the case); that such transfer involving more than 40% shares of stocks amounted to a transfer of franchise which is void because the authorization of Congress was not obtained. The NTC denied PLDT. PLDT then filed a petition for certiorari and prohibition against the NTC.
ISSUE: Whether or not PLDT’s petition should prosper.
HELD: No.
- PLDT cannot attack ETCI’s franchise in a petition for certiorari. It cannot be collaterally attacked. It should be directly attacked through a petition for quo warranto which is the correct procedure. A franchise is a property right and cannot be revoked or forfeited without due process of law. The determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto. Further, for any violation of the franchise, it should be the government who should be filing a quo warranto proceeding because it was the government who granted it in the first place.
- The transfer of more than 40% of the shares of stocks is not tantamount to a transfer of franchise. There is a distinction here. There is no need to obtain authorization of Congress for the mere transfer of shares of stocks. Shareholders can transfer their shares to anyone. The only limitation is that if the transfer involves more than 40% of the corporation’s stocks, it should be approved by the NTC. The transfer in this case was shown to have been approved by the NTC. What requires authorization from Congress is the transfer of franchise; and the person who shall obtain the authorization is the grantee (ETCI). A distinction should be made between shares of stock, which are owned by stockholders, the sale of which requires only NTC approval, and the franchise itself which is owned by the corporation as the grantee thereof, the sale or transfer of which requires Congressional sanction. Since stockholders own the shares of stock, they may dispose of the same as they see fit. They may not, however, transfer or assign the property of a corporation, like its franchise. In other words, even if the original stockholders had transferred their shares to another group of shareholders, the franchise granted to the corporation subsists as long as the corporation, as an entity, continues to exist. The franchise is not thereby invalidated by the transfer of the shares. A corporation has a personality separate and distinct from that of each stockholder. It has the right of continuity or perpetual succession.
