Villa Rey Transit vs.

Ferrer, 25 SCRA 845

Facts:
Villa Rey Transit was organized with a capital stock of P500,000.00. 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, the said Corporation bought five certificates of public convenience from
one Valentin Fernando. Public Service Commission granted a provisional permit prayed for
upon condition that it may be revoked by the Commission. However, the Sheriff of Manila, on
July 7, 1959, levied on two of the five certificates of public convenience involved in favor of
Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment
debtor. Hence, the Corporation filed in the Court of First Instance of Manila, a complaint for the
annulment of the sheriffs sale of the aforesaid two certificates of public convenience. 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.
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.