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Villa Rey Transit, Inc. v.

Ferrer
G.R. No. L-23893
October 29, 1968
CASE DIGEST
Facts:
Jose Villarama was a bus operator, under the business name of Villa Rey
Transit. He operated 32 bus units on various route lines from Pangasinan to
Manila, vice-versa, by virtue of 2 certificates of public convenience granted
him by the Public Service Commission (PSC).
He sold the 2 certificates of public convenience to the Pangasinan
Transportation Company, Inc. (PANTRANCO), for P350 under a conditional
sale with a stipulated condition 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."
But barely 3 months thereafter, a corporation called VILLA REY TRANSIT
INC. was organized with a capital stock of P500,000.00 where Natividad
Villarama, wife of Jose Villarama, was one of the incorporators other than the
brother and sister-in-law of Jose Villarama. And in less than a month after its
registration with the SEC the Corporation, bought 5 certificates of public
convenience, 49 buses, tools and equipment from one Valentin Fernando, for
the sum of P249 grand. And the very same day the contract of sale was
executed, the parties to the sale immediately applied with the PSC for
approval of the sale coupled with a permit to operate provisionally while the
case is pending.
But before PSC could take final action on said application for approval,
however, the Sherif of Manila, pursuant to a writ of execution issued by the
CFI of Pangasinan, levied on 2 of the 5 certificates of public convenience in
favor of Eusebio Ferrer (respondent in this case) against Valentin Fernando
(vendor of 5 certificates).
Consequently the Sherif conducted a public sale for the said 2 certificates of
public convenience. And Ferrer was the highest bidder, therefore a certificate
of sale was issued in his name. Thereafter, he sold 2 certificates of public
convenience to PANTRANCO.
In the meantime during the pendency of the case the PSC issued an order
disposing that before a final resolution on the aforesaid applications,
PANTRANCO shall be the one to operate provisionally the service under the
two certificates embraced in the contract between Ferrer and Pantranco.

The Corporation filed a complaint against Ferrer, PANTRANCO and and the
PSC for the annulment of the sherifs sale. PANTRANCO, on its part, filed a
third-party complaint against Villarama, alleging that Villarama and/or
disqualified from operating the two certificates in question by virtue of the
previous agreement.
The trial court declared null and void the sherifs sale of two certificates of
public convenience in favor of Ferrer and the subsequent sale thereof by the
latter to PANTRANCO and declaring VILLA REY TRANSIT, INC, to be the lawful
owner of the said certificates of public convenience.
PANTRANCO argues the correctness of the decision insofar as it holds that
Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from
Villarama.
ISSUE:
Whether or not the stipulation between the contract of Villarama and
Pantranco stating "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", binds VILLA REY TRANSIT, INC.
RULING:
YES. The restrictive clause in the contract entered into by the Villarama and
Pantranco is also enforceable and binding against the said Corporation. 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. The evidence has disclosed
that Villarama, albeit was not an incorporator or stockholder of the
Corporation, his wife, however, was an incorporator and was elected
treasurer of the Corporation. The evidence further shows that the initial cash
capitalization of the corporation was mostly financed by Villarama; he
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. The foregoing circumstances are strong persuasive
evidence showing that Villarama has been too much involved in the afairs of
the Corporation to altogether negate the claim that he was only a part-time
general manager. They show beyond doubt that the Corporation is his alter
ego.
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.