Villa Rey Transit vs.

Ferrer
Facts: Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant tocertificates of public convenience granted him by the Public Service Commission which authorized him to operate atotal of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the PangasinanTransportation Company, Inc. for P 350,000.00 with the condition, among others, that the seller "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Barely three months thereafter, or on March 6, 1959, a corporation called Villa Rey Transit, Inc. was organized. Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators and treasurer as well. In less than a month after its registration with the Securities and Exchange Commission the Corporation, on April 7,1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one ValentinFernando. The very same day that the aforementioned contract of sale was executed, the parties thereto immediately appliedwith the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendeeCorporation to operate the service therein involved. On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basicapplication and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila,levied on two of the five certificates of public convenience involved therein, pursuant to a writ of execution issued bythe Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgmentcreditor, against Valentin Fernando, defendant, judgment debtor. A public sale was conducted by the Sheriff of thesaid two certificates of public convenience and Ferrer was the highest bidder, and a certificate of sale was issued inhis name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approvaltheir corresponding contract of sale to the PSC. Issue: 1.Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICEIDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines? 2.Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; 3.In the affirmative, that said stipulation is valid, did it bind the Corporation?

Held: 1.The clear intention of the parties was to prevent the seller from conducting any competitive line for 10 years since,anyway, he has bound himself not to apply for authorization to operate along such lines for the duration of such period. If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru anapplication with the Public Service Commission, this would, in effect, allow the seller just the same to compete withthe buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator, thusdefeating the intention of the parties. 2.The 10-year restrictive clause in the contract between Villarama and Pantranco, while in thenature of an agreement suppressing competition, it is, however, merely ancillary orincidental to the main agreement which is that of sale. The suppression or restraint is onlypartial or limited: first, in scope, it refers only to application for TPU by the seller incompetition with the lines sold to the buyer; second, in duration, it is only for ten (10) years;and third, with respect to situs or territory, the restraint is only along the lines covered bythe certificates sold.3.The preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latterand Pantranco is also enforceable and binding against the said Corporation. Villa Rey Transit vs. Ferrer Case Digest
Villa Rey Transit vs. Ferrer [GR L-23893, 29 October 1968] Facts: [preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC) in Cases 44213 and 104651, which authorized him to operate a total of 32 units on various routes or lines from Pangasinan to Manila, and vice-versa. On 8 January 1959, he sold the two certificates of public convenience to the Pangasinan Transportation Company, Inc. (Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." Barely 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less than a month after its registration with the Securities and Exchange Commission (10 March 1959), the Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49 buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER." The very same day that the contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved. On 19 May 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the

Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July 1959, levied on 2 of the five certificates of public convenience involved therein, namely, those issued under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates. The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057, and that of Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to wit, on 22 July 1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court, which decreed, after deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one to operate the lines provisionally. [present case] On 4 November 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. The CFI of Manila declared the sheriff's sale of two certificates of public convenience in favor of Ferrer and the subsequent sale thereof by the latter to Pantranco null and void; declared the Corporation to be the lawful owner of the said certificates of public convenience; and ordered Ferrer and Pantranco, jointly and severally, to pay the Corporation, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. All parties appealed. Issue: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER" in the contract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.). Held: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment; there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the Corporation and deposited them to his private accounts; and the Corporation paid his personal accounts. Villarama himself admitted that he mingled the corporate funds with his own money. These circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality. The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a

vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.