PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT] vs. THE NATIONAL TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC

PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT] vs. THE NATIONAL TELECOMMUNICATIONS COMMISSION AND CELLCOM, INC., (EXPRESS TELECOMMUNICATIONS CO., INC. [ETCI])
G.R. No. 88404 October 18, 1990

Facts:
1.      Rep. Act No. 2090, was enacted, Granting Felix Alberto and Company, Incorporated, a Franchise to Establish Radio Stations for Domestic and Transoceanic Telecommunications.
2.      Felix Alberto & Co., Inc. (FACI) was the original corporate name, which was changed to ETCI with the amendment of the Articles of Incorporation in 1964.
3.      ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding capital stock sold their holdings to the Orbes.
4.      In 1968, the Albertos re-acquired the shares they had sold to the Orbes.
5.      In 1987, the Albertos sold more than 40% of their shares to HoracioYalung.
6.      Thereafter, the present stockholders acquired their ETCI shares.
7.      Moreover, in 1964, ETCI had increased its capital stock from P40,000.00 to P360,000.00; and in 1987, from P360,000.00 to P40M.
8.      On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondent NTC for the issuance of a Certificate of Public Convenience and Necessity (CPCN) to construct, install, establish, operate and maintain a Cellular Mobile Telephone System and an Alpha Numeric Paging System in Metro Manila and in the Southern Luzon regions.
9.      PLDT filed an Opposition.
10.  PLDT contends that the transfers in 1987 of the shares of stock to the new stockholders amount to a transfer of ETCI's franchise, which needs Congressional approval.

Issue:
            Whether or not the transfer of shares of stock of a corporation holding a CPCN is a transfer of a franchise

Ruling:
            SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the rights and privileges acquired thereunder to any person, firm, company, corporation or other commercial or legal entity nor merge with any other person, company or corporation organized for the same purpose, without the approval of the Congress of the Philippines. ...
            The foregoing provision is, directed to the "grantee" of the franchise, which is the corporation itself and refers to a sale, lease, or assignment of that franchise. It does not include the transfer or sale of shares of stock of a corporation by the latter's stockholders.
            The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the Public Service Act (Commonwealth Act No. 146). Pursuant thereto, the Public Service Commission (now the NTC) is the government agency vested with the authority to approve the transfer of more than 40% of the subscribed capital stock of a telecommunications company to a single transferee.
            In other words, transfers of shares of a public utility corporation need only NTC approval, not Congressional authorization. What transpired in ETCI were a series of transfers of shares starting in 1964 until 1987. The approval of the NTC may be deemed to have been met when it authorized the issuance of the provisional authority to ETCI. There was full disclosure before the NTC of the transfers.
            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.

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