Pldt vs ntc

190 SCRA 717 Business Organization 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 ETCIs 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 PLDTs petition should prosper.

HELD: No.

PLDT cannot attack ETCIs 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 corporations 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.