PLDT vs NTC (190 SCRA 717)

Philippine Long Distance Telephone Co. vs National Telecommunications Commission
190 SCRA 717 [GR No. 88404 October 18, 1990]

Facts: On June 22, 1958, Republic Act No. 2090, was enacted otherwise known as “An Act Granting Felix Alberto and Company, Incorporated, a franchise to establish radio stations for domestic and transoceanic telecommunications.” Felix Alberto & Co. Inc. was the original corporate name, which was changed to ETCI with amendment of the articles of incorporation in 1964. Much later, “CELLCOM Inc.” was the name sought to be adopted before the Securities and Exchange Commission, but this was withdrawn and abandoned.. On May 13, 1987, alleging urgent public need, ETCI filed an application with public respondent NTC for the issuance of a certificate of public convenience and necessity 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, with prayer for provisional authority to operate phase A of its proposal within Metro Manila. PLDT filed an opposition with motion to dismiss, however NTC over ruled it. NTC granted ETC provisional authority to install, operate, and maintain a cellular mobile telephone system initially in Metro Manila subject to terms and conditions, one of which is that ETCI and PLDT shall enter into an interconnection agreement for the provision of adequate interconnection facilities between applicant’s cellular mobile telephone switch and the public switched telephone network and shall jointly submit such interconnection agreement to the commission for approval ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding capital stock sold their holdings to Orbes. In 1968, the Albertos reacquired the shares they had sold to the Orbes. In 1987, the Albertos sold more than 40% of their shares to Horacio Yalung. Thereafter, the present stockholders acquired their ETCI shares. Moreover, in 1964, ETCI had increased its capital stock from Php40,000 to Php360,000; and in 1987, from Php360,000 to Php40,000,000.

Issue: Whether or not 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 pursuant to RA 2090.

Held: No. Section 10 of RA 2090 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, in section 20 (h) of the Public Service Act (CA 146). Pursuant thereto, the public service commission (now 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, transfer 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. In fact, the NTC order of November 12,1987 required ETCI to submit its present capital and ownership structure. Further, ETCI even filed a motion before the NTC, dated November 8, 1987 or more than a year prior to the grant of provisional authority, seeking approval of the increase in its capital stock from Php360,000 to Php40,000,000 and the stock transfers made by its stockholders.

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 shares. A corporation has a personality separate and distinct from that of each stockholder. It has the right to continuity or perpetual succession.

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