CASE TITLE: Villa Ray Transit Inc. v.
Ferrer
CASE NO.: G.R. No. L-23893 DATE: October 29, 1968
STUDENT NAME: Ali STUDENT NUMBER: 2024xxx
SUBJECT & SECTION: CORPORATION LAW SEMESTER: 1st
PROFESSOR: Attorney
DOCTRINE: 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.
FACTS:
Villarama was an operator of a bus transportation pursuant to certificates of public
convenience (CPC) granted by the Public Service Commission which enabled him to
operate 32 units on various routes from Pangasinan to Manila. He sold these to
Pantranco, with the condition that he shall not operate a service identical with a buyer for
10 years.
Barely three months later, Villa Rey Transit, Inc. was organized, with his wife as
one of the incorporators. After registration with the SEC, the Villa Rey bought five CPCs
and 49 buses from Fernando. However, the sheriff of the CFI Manila levied on 2 of the 5
CPCs in favor of Ferrer, judgment creditor of Fernando. Ferrer then sold 2 CPCs to
Pantranco. The Villa Rey filed against Ferrer, Pantranco, and PSC for annulment of the
sheriff’s sale. Pantranco alleged that the corporation was disqualified from operating the
CPCs in question by virtue of the condition, alleging that Villlarama was using the
corporation to circumvent the agreement.
ISSUE:
Whether or not 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 Villa Rey.
RULING:
Yes, it binds the Villa Rey.
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.
In this case, Villarama made use of the money of the Villa Rey and deposited them
to his private accounts; and the Villa Rey paid his personal accounts. Villarama himself
admitted that he mingled the corporate funds with his own money. These circumstances
were strong persuasive evidence showing that Villarama has been too much involved in
the affairs of the Villa Rey to altogether negative the claim that he was only a part-time
general manager. They show beyond doubt that the Villa Rey was his alter ego. The
interference of Villarama in the complex affairs of the corporation, and particularly its
finances, were much too inconsistent with the ends and purposes of the Corporation law,
which, precisely, seeks to separate personal responsibilities from corporate undertakings.
Thus, the Villa Rey Transit, Inc. was an alter ego of Jose M. Villarama, and that
the restrictive clause in the contract entered into by the latter and Pantranco as also
enforceable and binding against the said Villa Rey. For the rule was 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 Villa Rey was substantially the alter ego of the covenantor to the
restrictive agreement, it can be enjoined from competing with the covenantee.
