CAMARINES SUR INDUSTRY CORPORATION, PETITIONER, VS. JAIME T. BUENAFLOR, RESPONDENT.

Camarines Sur Industry Corporation versus Buenaflor

The Case

This is a petition by Camarines Sur Industry Corporation against Jaime T. Buenaflor, an appeal from a joint decision of the Public Service Commission in two sets of cases involving applications for certificates of public convenience to operate an ice plant and a cold storage service in the barrio of Sabang, in the municipality of Calabanga, province of Camarines Sur. The case matters because it shows how the Supreme Court treats a corporation whose term has expired but which keeps on doing business: such a corporation cannot claim the prior operator preference, and the corporation organized to take over its assets cannot inherit that preference either.

Procedural History

Jaime T. Buenaflor filed his applications for an ice plant and a cold storage service with the Public Service Commission. Camarines Sur Industry Corporation filed its own applications and opposed Buenaflor. The Commission held a joint hearing of all four applications. In its decision of December 12, 1958, the Commission granted Camarines Sur Industry Corporation the certificate for a five-ton ice plant in Sabang, and granted Buenaflor the certificate for a one-ton ice plant and a five thousand cubic feet cold storage service. Buenaflor appealed that decision to the Supreme Court, and the appeal was decided on May 30, 1960. In that earlier decision, the Supreme Court reversed the Commission, approved Buenaflor's application for five tons instead of one ton, and revoked the award to Camarines Sur Industry Corporation. The present appeal is Camarines Sur Industry Corporation's appeal from the same joint decision, insofar as that decision granted Buenaflor the cold storage service and denied the corporation's own application for it.

Facts

On June 25, 1957, Jaime T. Buenaflor filed his applications for an ice plant and for a cold storage and refrigeration service in Sabang. The Commission set the applications for hearing and required notice to Iñigo Daza and to Camarines Sur Industry Corporation, which owned ice plants in neighboring municipalities and had apparently been selling ice to the inhabitants of Sabang. After receiving copies of Buenaflor's applications, Camarines Sur Industry Corporation filed its own two applications on October 1, 1957, for a five-ton ice plant and a cold storage system in Sabang, and registered its opposition on the ground that it was the pioneer distributor of ice in that locality.

At the hearing, Buenaflor moved to dismiss the corporation's applications, challenging its personality because its corporate life had expired in November 1953 under its own articles of incorporation. The corporation's counsel asked for time to answer. The corporators then executed new articles of incorporation on October 30, 1957, and registered them on October 31, 1957, and at the same time notarized a deed conveying to the new corporation all the assets of the expired corporation, together with its existing certificates of public convenience to operate ice factories in Naga and Magarao. The Commission provisionally approved the transfer on November 7, 1957, and the new corporation answered the motion to dismiss on November 8, 1957.

The Commission found that there was a clear need for an ice plant and a cold storage service in Sabang, and that it should not authorize two ice plants of five tons each and two cold storage chambers with a total capacity of fourteen thousand cubic feet. It awarded the five-ton ice plant to Camarines Sur Industry Corporation as the pioneer operator, and the cold storage service, with a one-ton ice plant, to Buenaflor on the strength of his priority in filing and his financial capacity. On Buenaflor's appeal, the Supreme Court reversed the award of the ice plant to the corporation and approved Buenaflor's application for five tons. The corporation then brought the present appeal from the portion of the same decision that awarded the cold storage service to Buenaflor and denied its own application for that service.

Issues

• Whether or not Camarines Sur Industry Corporation, whose corporate existence had expired in November 1953, could file and maintain its applications for a certificate of public convenience and interpose the present appeal.
• Whether or not the corporation organized in October 1957, as transferee of the assets and certificates of the expired corporation, could claim the prior operator preference and the protection of the capital investment of its predecessor.
• Whether or not the Public Service Commission erred in granting Buenaflor the certificate for the cold storage service in Sabang and in denying the corporation's application for the same service.

Applicable Provisions

Section 77 of the Corporation Law, as discussed in the decision, provides:

After November 1953, it could only continue to exist for three years for the purpose of prosecuting and defending suits by or against it, and of enabling it gradually to settle and close its affairs, to dispose and convey its property and to divide its capital stock.

This provision fixes the limited purpose for which a corporation may continue after the expiration of its term, and it is the basis for holding that the old corporation could not lawfully keep selling ice in Sabang.

Ruling

On the first issue, the Court held that the petitioner is either the old corporation or the new one, and neither can prevail. If it is the old corporation, it has no authority to function, for its corporate existence expired years ago, and it can neither interpose the present appeal nor seek a certificate of public convenience. The Court recalled its earlier ruling that when the old corporation filed its application in October 1957, it had no juridical personality, had ceased to exist as a corporation, could not sue nor apply for a certificate, for it was incapable of receiving a grant, and was not even a corporation de facto.

On the second issue, the Court refused to treat the new corporation as a continuation of the old. It held that the old corporation had been illegally plying its business of selling ice in Sabang since 1953, and that the Commission had rewarded the new corporation precisely because the old corporation, its predecessor, had violated the law during that period. The Court would not countenance such an anomalous result. It also noted that the new corporation had filed no application for a certificate of public convenience in Sabang and had not published such an application. Had the old corporation complied with the law, it would have ceased to function, except to liquidate its affairs, since 1953, and it could not have invoked the right of preference upon which it relied when Buenaflor filed his application in 1957. It was its continued operation after 1953 that gave it a semblance of right to that preference, and to acknowledge it now would be to reward the illegality thus committed.

On the third issue, the Court found no error in the Commission's award of the cold storage service to Buenaflor. The premise of the corporation's argument, namely its preferential right as pioneer operator, had already been removed by the earlier decision, which reversed the award of the five-ton ice plant to the corporation and approved Buenaflor's application instead. The Court affirmed the decision appealed from.

Doctrine

A corporation whose term has expired may continue to exist only for the limited purposes allowed by Section 77 of the Corporation Law: prosecuting and defending suits, settling and closing its affairs, disposing and conveying its property, and dividing its capital stock. It cannot lawfully continue the business for which it was established, and any service it renders after expiration cannot be the basis of a prior operator preference.

A corporation organized to take over the assets and certificates of an expired corporation is not a continuation of the old one. It is at most a transferee, and it cannot inherit a preference that rests on the predecessor's illegal operation. A new corporation that has filed no application and published no notice has no standing to claim a certificate of public convenience.

Disposition

The Supreme Court affirmed the decision of the Public Service Commission, with costs against Camarines Sur Industry Corporation, so that Buenaflor kept the award of the cold storage service and the corporation's application for it was denied.

Remember This

Memorize this line: a corporation that keeps operating after its term expires earns no preference, and the corporation that takes over its assets inherits no preference either. Examiners use this case on the prior operator rule, on the limited survival of a corporation under Section 77 of the Corporation Law, and on the personality of a corporation whose term has expired.