Corpo - 35 Villa Rey Transit, Inc. v.

Ferrer (1968) Doctrine When the corporate 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. F!CT" Jose Villarama was an operator of a bus transpo company named Villa Rey Transit (the case did not mention what type of entity this is, but my guess is that its a S !"#$ %R&%'( )e was granted a *%* to operate +, units( -rom .anila to %angasinan and /ice0/ersa( Jose Villarama sold , *%*s to %1!TR1!*& (%angasinan Transportation *ompany'( t was sold for % +23,333( t came with a conditon that the seller (Villarama' shall not, for a period of 43 years, apply for any T%5 ser/ice identical6competing with the buyer( + months later, Villa Rey Transit nc( was organi7ed( t had an authori7ed capital stoc8 of %233,333 di/ided into 2,333 shares of par /alue %433( &f the 233,333 only ,33,333 was subscribed( !ati/idad Villarama (wife of Jose Villarama' was one of the incorporators She was also the treasurer( She subscribed for only %4,333( (the remaining subscribed capital (499,333' was subscribed by the borhter and sister0in0law of Jose Villarama'( &f the subscribed stoc8s, %432,333 was paid to the treasurer (this was paid /ia a chec8 drawn by Jose Villarama' Villa Rey Transit nc( registerd with the S$* and bought 2 *%*s, :9 buses, tools, and e;uipments from -ernando( <ut before the %S* can finally appro/e the sale, the Sheriff le/ied on , of the 2 *%*s in fa/or of -errer (a =udgment creditor of -ernando( Thereafter, -errer sold the , *%*s to %1!TR1!*&( Villa Rey Transit nc filed for a *omplaint for 1nnulment of the Sherrifs sale( >efense of -errer and %antranco? the sale (from -ernando to Villa Rey Tranit nc' was sub=ect to a suspensi/e condition (ie( the appro/al of %S*'( Since the %S* has not yet appro/ed the sale, the sheriff may /alidly le/y on the since it was still a property of -ernando at that time(
(TOPICAL) Pantranco filed a third-party complaint against Jose Villarama. Pantranco alleged that Villarama and or Villa !ey Transit Inc "as dis#$alified from operating the % CPCs &y 'irt$e of an agreement &et"een them (that it shall not apply for any TP) ser'ice*"ithin +, years-.

I""#$%&$'( (4' (T&% *1#' s the stipulation (the one prohibiting Villarama from applying for any T%5 ser/ice within 43 years' binding to Villa Rey Transit nc@ A$S( (,' >oes the stipulation only apply to new lines, or does it co/er eBisting lines@ t co/ers also eBisting lines( (+' s the stipulation /alid and enforceable@ A$S(

R!TI)? (4' The stipulation agreed upon by Jose Villarama and %antranco is binding to Villa Rey Transit nc( The S* said that Villa Rey Transit nc( is merely an alter ego of Villarama( t relied on se/eral pieces of e/idence? 4( -inances of the corporation were manipulated and disbursed as if they were pri/ate funds of Villarama( ,( &f the initial cash capitali7ation of 432,333, C2,333 was co/ered by Villaramas personal chec8, and ,3,333 was paid in cash( +( Ri/era, the accountant of the corporation, testified that the only money of the corporation was the 432,333 paid0in capital( )e testified that e/en if the boo8s of the corproration state that the treasurer recei/ed 92,333 and another 433,333 as paid0in capital subscription, it was not true that such an amount was actually recei/ed( :( Dhen the corporation was in its initial months of operation, Villarama was the one who purchased and paid for its -ord truc8s( 1ccording to the *ourt, Villarama has been too much in/ol/ed with the affairs of the corporation( t negates the claim that he was only a part0time general manager( Dhen the fiction is urged as a means of perpetrating a fraud or an illegal act or as a /ehicle for the e/asion of an eBisting obligation, the circum/ention of statutes, the achie/ement or perfection of a monopoly or generally the perpetration of 8na/ery or crime, the /eil with which the law co/ers and isolates the corporation from the members or stoc8holders who compose it will be lifted to allow for its consideration merely as an aggregation of indi/iduals( The preponderance of e/idence ha/e shown that the Villa Rey Transit, nc( is an alter ego of Jose .( Villarama, and that the restricti/e clause in the contract entered into by the latter and %antranco is also enforceable and binding against the said *orporation( -or the rule is that a seller or promisor may not ma8e use of a corporate entity as a means of e/ading the obligation of his co/enant( Dhere the *orporation is substantially the alter ego of the co/enantor to the restricti/e agreement, it can be en=oined from competing with the co/enantee( (,' The stipulation co/ers eBisting lines( The clear intention of the parties was to pre/ent the seller from conduction any competiti/e line for 43 years( (+' Stipulation is /alid( The e/ils of monopoly are far0fetched( The *ourt has constantly held that when one de/otes his property to a use in which the public has an interest, he /irtually grants to the public an interest in that use and submits it to such public use under reasonable rules and regulations to be fiBed by the %ublic 5tility *ommission(

>igested by? *ari .angalindan (1,342'