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Facts:
Jose Villarama was an operator of a bus transportation pursuant to 2 certificates of public
convenience granted to him by the Public Service Commission (PSC)
Villarama sold the certificates to the Pangasinan Transportation Commission (Pantranco) with the
condition that the seller (Villarama) shall not for a period of 10 years, apply for any TPU
service identical or competing with the buyer
3 months thereafter, a corporation called Villa Rey Transit, Inc. (the Corporation) was organized
with a capital stock of P500,000 divided into 5,000 shares of the par value of P100.00 each
o P200,000 was the subscribed stock
o Natividad Villarama (wife of Jose Villarama) was one of the incorporators; she subscribed
for P1,000
o The balance of P199,000 was subscribed by the brother and sister-in-law of Jose Villarama
o Of the subscribed capital stock, P105,000 was paid to the treasurer of the corporation,
Natividad
Thereafter the Corporation registered with the SEC, the Corporation bought 5 certificates of public
convenience and 49 buses from one Valentin Fernando
The Sherriff of Manila levied on 2 of the 5 certificates, in favor of Ferrer, a judgment creditor of
Fernando, the judgment debtor
o A public sale was conducted. Ferrer was the highest bidder. Ferrer sold the 2 certificates to
Pantranco
The Corporation filed a complaint against Ferrer, Pantranco and the PSC for the annulment of the
sheriff’s sale
Pantranco filed a third-party complaint against Villarama, alleging that Villarama and/or
the Corporation was disqualified from operating the 2 certificates in question by virtue of
the previous agreement
The trial court declared null and void the sheriff’s sale of 2 certificates of public convenience in
favor of Ferrer and the subsequent sale to Pantranco and declaring Villa Rey Transit to be the
lawful owner of the said certificates of public convenience
Pantranco now disputes the correctness of the decision insofar as it holds that Villa Rey
Transit (the Corporation) is a distinct and separate entity from Villarama. Ferrer
challenges the decision insofar as it holds that the sheriff’s sale is null and void
Issue: Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit (the
Corporation)—YES
Held
The restrictive clause in the contract entered into by the Villarama and Pantranco is also
enforceable and binding against the said Corporation
o The rule is that a sell or promisor may not make use of a corporate entity as a means of
evading the obligation of his covenant
In the case at bar…
o Evidence shows 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
o Evidence also shows that the initial cash capitalization of the Corporation was mostly
financed by Villarama
He supplied the organization expenses and assets of the Corporation, such as trucks
and equipment
o There was no actual payment by the original subscribers of the amounts of P95,000 and
P100,000 as appearing in the books
Villarama made use of the money of the Corporation and deposited them to private
accounts and the Corporation paid his personal accounts
o The foregoing circumstances show that Villarama has been too much involved in the
affairs 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
MAIN DOCTRINE: A corporation is a legal entity distinct and separate from the members and
stockholders who compose it. Such doctrine is recognized and respected in all cases WITHIN REASON
AND THE LAW. When the fiction is urged as a means of perpetrating 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
Tayag v. Benguet
Facts:
Idonah Slade Perkins died in New York City
Prospero Sanidad instituted ancillary administration proceedings appointing ancillary
administrator Marquez later on substituted by Tayag
The CFI ordered domiciliary administrator County Trust Company of New York to surrender to
the ancillary administrator in the Philippines 33,002 shares of stock certificates owned by Perkins
in a Philippine corporation, Benguet Consolidated Inc., to satisfy the legitimate claims of local
creditors
When County Trust Company of NY refused, the court ordered Benguet Consolidated to declare
the stocks lost and required it to issue new certificated in lieu thereof
An appeal was taken by Benguet Consolidated alleging the failure to comply with its by-laws
setting forth the procedure to be followed in case of a lost, stolen, or destroyed so it cannot issue
new stock certificates
Issue: Whether Benguet Consolidated can ignore a court order because of its by-laws—NO
Held:
Benguet Consolidated is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts
Assuming that a contrariety exists between the by-law and the command of a court decree, the
latter is to be followed
A corporation is an artificial being created by OPERATION OF LAW—“It owes its life to the
state, its birth being purely dependent on its will. It cannot ignore the source of its very
existence”
o In Philippine jurisprudence, a corporation is a creature without any existence until it has
received the imprimatur of the state according to law
o It is logically inconceivable therefore that it will have rights and privileges of a higher
priority than that of its creator
o It cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so
International Express Travel and Tour Services v. CA
Facts:
International Express Travel and Tour Services, Inc. (IETTI) offered to the Philippine Football
Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its
president, agreed. IETTI then delivered plane tickets to PFF, PFF in turn made a down payment
However, PFF was not able to complete the full payment in subsequent installments despite
repeated demands from IETTI
IETTI then sued PFF and Kahn was impleaded as a co-defendant
Kahn averred that he should not be impleaded because he merely acted as an agent of PFF,
which he averred is a corporation with separate and distinct personality from him
The trial court ruled against Kahn and held him personally liable for the said obligation
o It ruled that Kahn failed to prove that PFF is a corporation
The CA reversed the decision
o The CA took judicial notice of the existence of PFF as a national sports association and as
such, PFF is empowered to enter into contracts through its agents
o PFF is therefore liable for the contract entered into by its agent Kahn
o The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate
existence of PFF in such a manner as to recognize and in effect admit its existence
Held:
PFF, upon its creation, is not automatically considered a national sports association
o It must first be recognized and accredited by the Philippine Amateur Athletic Federation
and the Department of Youth and Sports Development
o This fact was never proved by Kahn
Therefore, PFF is considered as an unincorporated sports association
o Under the law, any person acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and becomes personally liable for the contract
entered into or for other acts performed as such agent
o Kahn is therefore personally liable for the contract entered into by PFF with IETTI
There is also no merit on finding IETTI is in estoppel
o The application of the doctrine of corporation by estoppel applies to a third party only
when he tries to escape liability on a contract from which he has benefited on the irrelevant
ground of defective incorporation
o In the case at bar, IETTI is not trying to escape liability from the contract but rather is the
one claiming from the contract