VILLA REY TRANSIT, INC., plaintiff-appellant, vs. EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC.

and PUBLIC SERVICE COMMISSION,defendants. EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants. PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs. JOSE M. VILLARAMA, third-party defendant-appellee. G.R. No. L-23893 O !o"#$ 29, %9&8 This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 4184 , declarin! null and void the sheriff"s sale of two certificates of pu#lic convenience in favor of defendant $use#io $. Ferrer and the su#se%uent sale thereof #y the latter to defendant &an!asinan Transportation Co., Inc.' declarin! the plaintiff (illa )ey Transit, Inc., to #e the la*ful o*ner of the said certificates of pu#lic convenience' and orderin! the private defendants, +ointly and severally, to pay to the plaintiff, the sum of & ,,,,.,, as and for attorney"s fees. The case a!ainst the &-C *as dismissed. The rather ramified circumstances of the instant case can #est #e understood #y a chronolo!ical narration of the essential facts, to *it. &rior to 1/ /, 0ose M. (illarama *as an operator of a #us transportation, under the #usiness name of (illa )ey Transit, pursuant to certificates of pu#lic convenience !ranted him #y the &u#lic -ervice Commission 1&-C, for short2 in Cases Nos. 44314 and 1,45 1, *hich authori6ed him to operate a total of thirty-t*o 1432 units on various routes or lines from &an!asinan to Manila, and vice-versa. 7n 0anuary 8, 1/ /, he sold the aforementioned t*o certificates of pu#lic convenience to the &an!asinan Transportation Company, Inc. 1other*ise 8no*n as &antranco2, for &4 ,,,,,.,, *ith the condition, amon! others, that the seller 1(illarama2 9shall not for a period of 1, years from the date of this sale, apply for any T&: service identical or competin! *ith the #uyer.9 ;arely three months thereafter, or on March 5, 1/ /. a corporation called (illa )ey Transit, Inc. 1*hich shall #e referred to hereafter as the Corporation2 *as or!ani6ed *ith a capital stoc8 of & ,,,,,,.,, divided into ,,,, shares of the par value of &1,,.,, each' &3,,,,,,.,, *as the su#scri#ed stoc8' Natividad ). (illarama 1*ife of 0ose M. (illarama2 *as one of the incorporators, and she su#scri#ed for &1,,,,.,,' the #alance of &1//,,,,.,, *as su#scri#ed #y the #rother and sister-in-la* of 0ose M. (illarama' of the su#scri#ed capital stoc8, &1, ,,,,.,, *as paid to the treasurer of the corporation, *ho *as Natividad ). (illarama. In less than a month after its re!istration *ith the -ecurities and $<chan!e Commission 1March 1,, 1/ /2, the Corporation, on =pril >, 1/ /, #ou!ht five certificates of pu#lic convenience, forty-nine #uses, tools and e%uipment from one (alentin Fernando, for the sum of &34/,,,,.,,, of *hich &1,,,,,,.,, *as paid upon the si!nin! of the contract' & ,,,,,.,, *as paya#le upon the final approval of the sale #y the &-C' &4/, ,,.,, one year after the final approval of the sale' and the #alance of & ,,,,,.,, 9shall #e paid #y the ;:?$) to the different suppliers of the -$@@$).9 The very same day that the aforementioned contract of sale *as e<ecuted, the parties thereto immediately applied *ith the &-C for its approval, *ith a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved.1 7n May 1/, 1/ /, the &-C !ranted the provisional permit prayed for, upon the condition that 9it may #e modified or revo8ed #y the Commission at any time, shall #e su#+ect to *hatever action that may #e ta8en on the #asic application and shall #e valid only durin! the pendency of said application.9 ;efore the &-C could ta8e final action on said application for approval of sale, ho*ever, the -heriff of Manila, on 0uly >, 1/ /, levied on two of the five certificates of public convenience involved therein, namely, those issued under &-C cases Nos. /4/4 and 54>8,, pursuant to a *rit of e<ecution issued #y the Court of First Instance of &an!asinan in Civil Case No. 14>/8, in favor of $use#io Ferrer, plaintiff, +ud!ment creditor, a!ainst (alentin Fernando, defendant, +ud!ment de#tor. The -heriff made and entered the levy in the records of the &-C. 7n 0uly 15, 1/ /, a pu#lic sale *as conducted #y the -heriff of the said two certificates of pu#lic convenience. Ferrer *as the hi!hest #idder, and a certificate of sale *as issued in his name. Thereafter, Ferrer sold the two certificates of pu#lic convenience to &antranco, and +ointly su#mitted for approval their correspondin! contract of sale to the &-C.3 &antranco therein prayed that it #e authori6ed provisionally to operate the service involved in the said two certificates. The applications for approval of sale, filed #efore the &-C, #y Fernando and the Corporation, Case No. 134, >, and that of Ferrer and &antranco, Case No. 1353>8, *ere scheduled for a +oint hearin!. In the meantime, to *it, on 0uly 33, 1/ /, the &-C issued an order disposin! that durin! the pendency of the cases and #efore a final resolution on the aforesaid applications, the &antranco shall #e the one to operate provisionally the service under the two certificates em#raced in the contract #et*een Ferrer and &antranco. The Corporation too8 issue *ith this particular rulin! of the &-C and elevated the

matter to the -upreme Court,4 *hich decreed, after deli#eration, that until the issue on the o*nership of the disputed certificates shall have #een finally settled #y the proper court, the Corporation should #e the one to operate the lines provisionally. 7n Novem#er 4, 1/ /, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff"s sale of the aforesaid two certificates of pu#lic convenience 1&-C Cases Nos. /4/4 and 54>8,2 in favor of the defendant Ferrer, and the su#se%uent sale thereof #y the latter to &antranco, a!ainst Ferrer, &antranco and the &-C. The plaintiff Corporation prayed therein that all the orders of the &-C relative to the parties" dispute over the said certificates #e annulled. In separate ans*ers, the defendants Ferrer and &antranco averred that the plaintiff Corporation had no valid title to the certificates in %uestion #ecause the contract pursuant to *hich it ac%uired them from Fernando *as su#+ect to a suspensive condition A the approval of the &-C A *hich has not yet #een fulfilled, and, therefore, the -heriff"s levy and the conse%uent sale at pu#lic auction of the certificates referred to, as *ell as the sale of the same #y Ferrer to &antranco, *ere valid and re!ular, and vested unto &antranco, a superior ri!ht thereto. &antranco, on its part, filed a third-party complaint a!ainst 0ose M. (illarama, alle!in! that (illarama and the Corporation, are one and the same' that (illarama andBor the Corporation *as dis%ualified from operatin! the t*o certificates in %uestion #y virtue of the aforementioned a!reement #et*een said (illarama and &antranco, *hich stipulated that (illarama 9shall not for a period of 1, years from the date of this sale, apply for any T&: service identical or competin! *ith the #uyer.9 :pon the +oinder of the issues in #oth the complaint and third-party complaint, the case *as tried, and thereafter decision *as rendered in the terms, as a#ove stated. =s stated at the #e!innin!, all the parties involved have appealed from the decision. They su#mitted a +oint record on appeal. &antranco disputes the correctness of the decision insofar as it holds that (illa )ey Transit, Inc. 1Corporation2 is a distinct and separate entity from 0ose M. (illarama' that the restriction clause in the contract of 0anuary 8, 1/ / #et*een &antranco and (illarama is null and void' that the -heriff"s sale of 0uly 15, 1/ /, is li8e*ise null and void' and the failure to a*ard dama!es in its favor and a!ainst (illarama. Ferrer, for his part, challen!es the decision insofar as it holds that the sheriff"s sale is null and void' and the sale of the twocertificates in %uestion #y (alentin Fernando to the Corporation, is valid. Ce also assails the a*ard of & ,,,,.,, as attorney"s fees in favor of the Corporation, and the failure to a*ard moral dama!es to him as prayed for in his counterclaim. The Corporation, on the other hand, prays for a revie* of that portion of the decision a*ardin! only & ,,,,.,, as attorney"s fees, and insistin! that it is entitled to an a*ard of &1,,,,,,.,, #y *ay of e<emplary dama!es. =fter a careful study of the facts o#tainin! in the case, the vital issues to #e resolved are. 112 Does the stipulation #et*een (illarama and &antranco, as contained in the deed of sale, that the former 9-C=@@ N7T F7) = &$)I7D 7F 1, ?$=)F)7M TC$ D=T$ 7F TCI- -=@$, =&&@? F7) =N? T&: -$)(IC$ ID$NTIC=@ 7) C7M&$TINE FITC TC$ ;:?$),9 apply to ne* lines only or does it include e<istin! linesG' 132 =ssumin! that said stipulation covers all 8inds of lines, is such stipulation valid and enforcea#leG' 142 In the affirmative, that said stipulation is valid, did it #ind the CorporationG For convenience, Fe propose to discuss the fore!oin! issues #y startin! *ith the last proposition. The evidence has disclosed that (illarama, al#eit *as not an incorporator or stoc8holder of the Corporation, alle!in! that he did not #ecome such, #ecause he did not have sufficient funds to invest, his *ife, ho*ever, *as an incorporator *ith the least su#scri#ed num#er of shares, and *as elected treasurer of the Corporation. The finances of the Corporation *hich, under all concepts in the la*, are supposed to #e under the control and administration of the treasurer 8eepin! them as trust fund for the Corporation, *ere, nonetheless, manipulated and dis#ursed as if they *ere the private funds of (illarama, in such a *ay and e<tent that (illarama appeared to #e the actual o*ner-treasurer of the #usiness *ithout re!ard to the ri!hts of the stoc8holders. The follo*in! testimony of (illarama, 4 to!ether *ith the other evidence on record, attests to that effect.

H. Doctor, I *ant to !o #ac8 a!ain to the incorporation of the (illa )ey Transit, Inc. ?ou heard the testimony presented here #y the #an8 re!ardin! the initial openin! deposit of 7N$ C:ND)$D FI($ TC7:-=ND &$-7-, of *hich amount $i!hty-Five Thousand &esos *as a chec8 dra*n #y yourself personally. In the direct e<amination you told the Court that the reason you dre* a chec8 for $i!hty-Five Thousand &esos *as #ecause you and your *ife, or your *ife, had spent the money of the stoc8holders !iven to her for incorporation. Fill you please tell the Conora#le Court if you 8ne* at the time your *ife *as spendin! the money to pay de#ts, you personally 8ne* she *as spendin! the money of the incorporatorsG =. ?ou 8no* my money and my *ife"s money are one. Fe never tal8 a#out those thin!s.

H. Doctor, your ans*er then is that since your money and your *ife"s money are one money and you did not 8no* *hen your *ife *as payin! de#ts *ith the incorporator"s moneyG =. ;ecause sometimes she uses my money, and sometimes the money !iven to her she !ives to me and I deposit the money. H. =ctually, aside from your *ife, you *ere also the custodian of some of the incorporators here, in the #e!innin!G =. Not necessarily, they !ive to my *ife and *hen my *ife hands to me I did not 8no* it #elon!ed to the incorporators. H. It supposes then your *ife !ives you some of the money received #y her in her capacity as treasurer of the corporationG =. H. =. H. =. H. May#e. Fhat did you do *ith the money, deposit in a re!ular accountG Deposit in my account. 7f all the money !iven to your *ife, she did not receive any chec8G I do not remem#er. Is it usual for you, Doctor, to #e !iven Fifty Thousand &esos *ithout even as8in! *hat is thisG
<<< <<< <<<

0:DE$.

)eform the %uestion.

H. The su#scription of your #rother-in-la*, Mr. )eyes, is Fifty-T*o Thousand &esos, did your *ife !ive you Fifty-t*o Thousand &esosG =. I have testified #efore that sometimes my *ife !ives me money and I do not 8no* e<actly for *hat.

The evidence further sho*s that the initial cash capitali6ation of the corporation of &1, ,,,,.,, *as mostly financed #y (illarama. 7f the &1, ,,,,.,, deposited in the First National City ;an8 of Ne* ?or8, representin! the initial paid-up capital of the Corporation, &8 ,,,,.,, *as covered #y (illarama"s personal chec8. The deposit slip for the said amount of &1, ,,,,.,, *as admitted in evidence as $<h. 34, *hich sho*s on its face that &3,,,,,.,, *as paid in cash and &8 ,,,,.,, thereof *as covered #y Chec8 No. F- ,3>1 of the First National City ;an8 of Ne* ?or8. The testimonies of =lfonso -ancho and 0oa%uin =mansec,5 #oth employees of said #an8, have proved that the dra*er of the chec8 *as 0ose (illarama himself. =nother *itness, Celso )ivera, accountant of the Corporation, testified that *hile in the #oo8s of the corporation there appears an entry that the treasurer received &/ ,,,,.,, as second installment of the paid-in su#scriptions, and, su#se%uently, also &1,,,,,,.,, as the first installment of the offer for second su#scriptions *orth &3,,,,,,.,, from the

ori!inal su#scri#ers, yet (illarama directed him 1)ivera2 to ma8e vouchers li%uidatin! the sums. > Thus, it *as made to appear that the &/ ,,,,.,, *as delivered to (illarama in payment for e%uipment purchased from him, and the &1,,,,,,.,, *as loaned as advances to the stoc8holders. The said accountant, ho*ever, testified that he *as not a*are of any amount of money that had actually passed hands amon! the parties involved, 8 and actually the only money of the corporation *as the &1, ,,,,.,, covered #y the deposit slip $<h. 34, of *hich as mentioned a#ove, &8 ,,,,.,, *as paid #y (illarama"s personal chec8. Further, the evidence sho*s that *hen the Corporation *as in its initial months of operation, (illarama purchased and paid *ith his personal chec8s Ford truc8s for the Corporation. $<hi#its 3, and 31 disclose that the said purchases *ere paid #y &hilippine ;an8 of Commerce Chec8s Nos. //3518-; and //4531-;, respectively. These chec8s have #een sufficiently esta#lished #y Fausto =#ad, =ssistant =ccountant of Manila Tradin! I -upply Co., from *hich the truc8s *ere purchased/and =ristedes -olano, an employee of the &hilippine ;an8 of Commerce, 1, as havin! #een dra*n #y (illarama. $<hi#its 5 to 1/ and $<h. 33, *hich are photostatic copies of led!er entries and vouchers sho*in! that (illarama had comin!led his personal funds and transactions *ith those made in the name of the Corporation, are very illuminatin! evidence. (illarama has assailed the admissi#ility of these e<hi#its, contendin! that no evidentiary value *hatsoever should #e !iven to them since 9they *ere merely photostatic copies of the ori!inals, the #est evidence #ein! the ori!inals themselves.9 =ccordin! to him, at the time &antranco offered the said e<hi#its, it *as the most li8ely possessor of the ori!inals thereof #ecause they *ere stolen from the files of the Corporation and only &antranco *as a#le to produce the alle!ed photostat copies thereof. -ection of )ule 14, of the )ules of Court provides for the re%uisites for the admissi#ility of secondary evidence *hen the ori!inal is in the custody of the adverse party, thus. 112 opponent"s possession of the ori!inal' 132 reasona#le notice to opponent to produce the ori!inal' 142 satisfactory proof of its e<istence' and 142 failure or refusal of opponent to produce the ori!inal in court.11 (illarama has practically admitted the second and fourth re%uisites. 13 =s to the third, he admitted their previous e<istence in the files of the Corporation and also that he had seen some of them. 14 )e!ardin! the first element, (illarama"s theory is that since even at the time of the issuance of the subpoena duces tecum, the ori!inals *ere already missin!, therefore, the Corporation *as no lon!er in possession of the same. Co*ever, it is not necessary for a party see8in! to introduce secondary evidence to sho* that the ori!inal is in the actual possession of his adversary. It is enou!h that the circumstances are such as to indicate that the *ritin! is in his possession or under his control. Neither is it re%uired that the party entitled to the custody of the instrument should, on #ein! notified to produce it, admit havin! it in his possession.14 Cence, secondary evidence is admissi#le *here he denies havin! it in his possession. The party callin! for such evidence may introduce a copy thereof as in the case of loss. For, amon! the e<ceptions to the #est evidence rule is 9*hen the ori!inal has #een lost, destroyed, or cannot #e produced in court.9 1 The ori!inals of the vouchers in %uestion must #e deemed to have #een lost, as even the Corporation admits such loss. (ie*ed upon this li!ht, there can #e no dou#t as to the admissi#ility in evidence of $<hi#its 5 to 1/ and 33. Ta8in! account of the fore!oin! evidence, to!ether *ith Celso )ivera"s testimony, 15 it *ould appear that. (illarama supplied the or!ani6ation e<penses and the assets of the Corporation, such as truc8s and e%uipment' 1> there *as no actual payment #y the ori!inal su#scri#ers of the amounts of &/ ,,,,.,, and &1,,,,,,.,, as appearin! in the #oo8s'18(illarama made use of the money of the Corporation and deposited them to his private accounts' 1/ and the Corporation paid his personal accounts.3, (illarama himself admitted that he min!led the corporate funds *ith his o*n money. 31 Ce also admitted that !asoline purchases of the Corporation *ere made in his name 33 #ecause 9he had e<istin! account *ith -tanvac *hich *as properly secured and he *anted the Corporation to #enefit from the re#ates that he received.9 34 The fore!oin! circumstances are stron! persuasive evidence sho*in! that (illarama has #een too much involved in the affairs of the Corporation to alto!ether ne!ative the claim that he *as only a part-time !eneral mana!er. They sho* #eyond dou#t that the Corporation is his alter ego. It is si!nificant that not a sin!le one of the acts enumerated a#ove as proof of (illarama"s oneness *ith the Corporation has #een denied #y him. 7n the contrary, he has admitted them *ith offered e<cuses. (illarama has admitted, for instance, havin! paid &8 ,,,,.,, of the initial capital of the Corporation *ith the lame e<cuse that 9his *ife had re%uested him to reim#urse the amount entrusted to her #y the incorporators and *hich she had used to pay the o#li!ations of Dr. (illarama 1her hus#and2 incurred *hile he *as still the o*ner of (illa )ey Transit, a sin!le proprietorship.9 ;ut *ith his admission that he had received &4 ,,,,,.,, from &antranco for the sale of the two certificates and one unit,34 it #ecomes difficult to accept (illarama"s e<planation that he and his *ife, after consultation,3 spent the money of their relatives 1the stoc8holders2 *hen they *ere supposed to have their o*n money.

$ven if &antranco paid the &4 ,,,,,.,, in chec8 to him, as claimed, it could have #een easy for (illarama to have deposited said chec8 in his account and issued his o*n chec8 to pay his o#li!ations. =nd there is no evidence adduced that the said amount of &4 ,,,,,.,, *as all spent or *as insufficient to settle his prior o#li!ations in his #usiness, and in the li!ht of the stipulation in the deed of sale #et*een (illarama and &antranco that & ,,,,,.,, of the sellin! price *as earmar8ed for the payments of accounts due to his creditors, the e<cuse appears un#elieva#le. 7n his havin! paid for purchases #y the Corporation of truc8s from the Manila Tradin! I -upply Co. *ith his personal chec8s, his reason *as that he *as only sharin! *ith the Corporation his credit *ith some companies. =nd his main reason for min!lin! his funds *ith that of the Corporation and for the latter"s payin! his private #ills is that it *ould #e more convenient that he 8ept the money to #e used in payin! the re!istration fees on time, and since he had loaned money to the Corporation, this *ould #e set off #y the latter"s payin! his #ills. (illarama admitted, ho*ever, that the corporate funds in his possession *ere not only for re!istration fees #ut for other important o#li!ations *hich *ere not specified. 35 Indeed, *hile (illarama *as not the Treasurer of the Corporation #ut *as, alle!edly, only a part-time mana!er, 3> he admitted not only havin! held the corporate money #ut that he advanced and lent funds for the Corporation, and yet there *as no ;oard )esolution allo*in! it.38 (illarama"s e<planation on the matter of his involvement *ith the corporate affairs of the Corporation only renders more credi#le &antranco"s claim that his control over the corporation, especially in the mana!ement and disposition of its funds, *as so e<tensive and intimate that it is impossi#le to se!re!ate and identify *hich money #elon!ed to *hom. The interference of (illarama in the comple< affairs of the corporation, and particularly its finances, are much too inconsistent *ith the ends and purposes of the Corporation la*, *hich, precisely, see8s to separate personal responsi#ilities from corporate underta8in!s. It is the very essence of incorporation that the acts and conduct of the corporation #e carried out in its o*n corporate name #ecause it has its o*n personality. The doctrine that a corporation is a le!al entity distinct and separate from the mem#ers and stoc8holders *ho compose it is reco!ni6ed and respected in all cases *hich are *ithin reason and the la*. 3/ Fhen the fiction is ur!ed as a means of perpetratin! a fraud or an ille!al act or as a vehicle for the evasion of an e<istin! o#li!ation, the circumvention of statutes, the achievement or perfection of a monopoly or !enerally the perpetration of 8navery or crime, 4, the veil *ith *hich the la* covers and isolates the corporation from the mem#ers or stoc8holders *ho compose it *ill #e lifted to allo* for its consideration merely as an a!!re!ation of individuals. :pon the fore!oin! considerations, Fe are of the opinion, and so hold, that the preponderance of evidence have sho*n that the (illa )ey Transit, Inc. is an alter ego of 0ose M. (illarama, and that the restrictive clause in the contract entered into #y the latter and &antranco is also enforcea#le and #indin! a!ainst the said Corporation. For the rule is that a seller or promisor may not ma8e use of a corporate entity as a means of evadin! the o#li!ation of his covenant. 41 Fhere the Corporation is su#stantially the alter ego of the covenantor to the restrictive a!reement, it can #e en+oined from competin! *ith the covenantee.43 The Corporation contends that even on the supposition that (illa )ey Transit, Inc. and (illarama are one and the same, the restrictive clause in the contract #et*een (illarama and &antranco does not include the purchase of e<istin! lines #ut it only applies to application for the ne* lines. The clause in dispute reads thus.

142 The -$@@$) shall not, for a period of ten 11,2 years from the date of this sale apply for any TPU service identical or competing with the BUYER. 1$mphasis supplied2
=s Fe read the disputed clause, it is evident from the conte<t thereof that the intention of the parties *as to eliminate the seller as a competitor of the #uyer for ten years alon! the lines of operation covered #y the certificates of pu#lic convenience su#+ect of their transaction. The *ord 9apply9 as #roadly used has for frame of reference, a service #y the seller on lines or routes that *ould compete *ith the #uyer alon! the routes ac%uired #y the latter. In this +urisdiction, prior authori6ation is needed #efore anyone can operate a T&: service, 44*hether the service consists in a ne* line or an old one ac%uired from a previous operator. The clear intention of the parties *as to prevent the seller from conductin! any competitive line for 1, years since, any*ay, he has #ound himself not to apply for authori6ation to operate alon! such lines for the duration of such period.44 If the prohi#ition is to #e applied only to the ac%uisition of ne* certificates of pu#lic convenience thru an application *ith the &u#lic -ervice Commission, this *ould, in effect, allo* the seller +ust the same to compete *ith the #uyer as lon! as his authority to operate is only ac%uired thru transfer or sale from a previous operator, thus defeatin! the intention of the parties. For *hat *ould prevent the seller, under the circumstances, from havin! a representative or dummy apply in the

latter"s name and then later on transferrin! the same #y sale to the sellerG -ince stipulations in a contract is the la* #et*een the contractin! parties,

$very person must, in the e<ercise of his ri!hts and in the performance of his duties, act *ith +ustice, !ive everyone his due, and o#serve honesty and !ood faith. 1=rt. 1/, Ne* Civil Code.2
Fe are not impressed of (illarama"s contention that the re-*ordin! of the t*o previous drafts of the contract of sale #et*een (illarama and &antranco is si!nificant in that as it no* appears, the parties intended to effect the least restriction. Fe are persuaded, after an e<amination of the supposed drafts, that the scope of the final stipulation, *hile not as lon! and proli< as those in the drafts, is +ust as #road and comprehensive. =t most, it can #e said that the re-*ordin! *as done merely for #revity and simplicity. The evident intention #ehind the restriction *as to eliminate the sellers as a competitor, and this must #e, considerin! such factors as the !ood *ill4 that the seller had already !ained from the ridin! pu#lic and his adeptness and proficiency in the trade. 7n this matter, Cor#in, an authority on Contracts has this to say. 45

Fhen one #uys the #usiness of another as a !oin! concern, he usually *ishes to 8eep it !oin!' he *ishes to !et the location, the #uildin!, the stoc8 in trade, and the customers. Ce *ishes to step into the seller"s shoes and to en+oy the same #usiness relations *ith other men. Ce is *illin! to pay much more if he can !et the 9!ood *ill9 of the #usiness, meanin! #y this the !ood *ill of the customers, that they may continue to tread the old footpath to his door and maintain *ith him the #usiness relations en+oyed #y the seller. ... In order to #e *ell assured of this, he o#tains and pays for the seller"s promise not to reopen #usiness in competition *ith the #usiness sold.
=s to *hether or not such a stipulation in restraint of trade is valid, our +urisprudence on the matter 4>says.

The la* concernin! contracts *hich tend to restrain #usiness or trade has !one throu!h a lon! series of chan!es from time to time *ith the chan!in! condition of trade and commerce. Fith triflin! e<ceptions, said chan!es have #een a continuous development of a !eneral rule. The early cases sho* plainly a disposition to avoid and annul all contract *hich prohi#ited or restrained any one from usin! a la*ful trade 9at any time or at any place,9 as #ein! a!ainst the #enefit of the state. Later, however, the rule became well established that if the restraint was limited to a certain time and within a certain place, such contracts were valid and not against the benefit of the state! Later cases, and we thin" the rule is now well established, have held that a contract in restraint of trade is valid providing there is a limitation upon either time or place . = contract, ho*ever, *hich restrains a man from enterin! into #usiness or trade *ithout either a limitation as to time or place, *ill #e held invalid. The pu#lic *elfare of course must al*ays #e considered and if it #e not involved and the restraint upon one party is not !reater than protection to the other re%uires, contracts li8e the one *e are discussin! *ill #e sustained. The !eneral tendency, *e #elieve, of modern authority, is to ma8e the test *hether the restraint is reasona#ly necessary for the protection of the contractin! parties. If the contract is reasona#ly necessary to protect the interest of the parties, it *ill #e upheld. 1$mphasis supplied.2
=naly6in! the characteristics of the %uestioned stipulation, Fe find that althou!h it is in the nature of an a!reement suppressin! competition, it is, ho*ever, merely ancillary or incidental to the main a!reement *hich is that of sale. The suppression or restraint is only partial or limited. first, in scope, it refers only to application for T&: #y the seller in competition *ith the lines sold to the #uyer' second, in duration, it is only for ten 11,2 years' and third, with respect to situs or territory, the restraint is only alon! the lines covered #y the certificates sold. In vie* of these limitations, coupled *ith the consideration of &4 ,,,,,.,, for +ust two certificates of pu#lic convenience, and considerin!, furthermore, that the disputed stipulation is only incidental to a main a!reement, the same is reasona#le and it is not harmful nor o#no<ious to pu#lic service.48 It does not appear that the ultimate result of the clause or stipulation *ould #e to leave solely to &antranco the ri!ht to operate alon! the lines in %uestion, there#y esta#lishin! monopoly or predominance appro<imatin! thereto. Fe #elieve the main purpose of the restraint *as to protect for a limited time the #usiness of the #uyer. Indeed, the evils of monopoly are farfetched here. There can #e no dan!er of price controls or deterioration of the service #ecause of the close supervision of the &u#lic -ervice Commission. 4/ This Court had stated lon! a!o,4, that 9*hen one devotes his property to a use in *hich the pu#lic has an interest, he virtually !rants to the pu#lic an interest in that use and su#mits it to such pu#lic use under reasona#le rules and re!ulations to #e fi<ed #y the &u#lic :tility Commission.9

)e!ardin! that aspect of the clause that it is merely ancillary or incidental to a la*ful a!reement, the underlyin! reason sustainin! its validity is *ell e<plained in 45 =m. 0ur. 4>- 4/, to *it.

... Numerous authorities hold that a covenant *hich is incidental to the sale and transfer of a trade or #usiness, and *hich purports to #ind the seller not to en!a!e in the same #usiness in competition *ith the purchaser, is la*ful and enforcea#le. Fhile such covenants are desi!ned to prevent competition on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition !enerally in the locality, nor to prevent it at all in a *ay or to an e<tent in+urious to the pu#lic. The #usiness in the hands of the purchaser is carried on +ust as it *as in the hands of the seller' the former merely ta8es the place of the latter' the commodities of the trade are as open to the pu#lic as they *ere #efore' the same competition e<ists as e<isted #efore' there is the same employment furnished to others after as #efore' the profits of the #usiness !o as they did #efore to s*ell the sum of pu#lic *ealth' the pu#lic has the same opportunities of purchasin!, if it is a mercantile #usiness' and production is not lessened if it is a manufacturin! plant.
The reliance #y the lo*er court on tile case of Red Line Transportation #o! v! Bachrach41 and findin! that the stipulation is ille!al and void seems misplaced. In the said Red Line case, the a!reement therein sou!ht to #e enforced *as virtually a division of territory #et*een t*o operators, each company imposin! upon itself an o#li!ation not to operate in any territory covered #y the routes of the other. )estraints of this type, amon! common carriers have al*ays #een covered #y the !eneral rule invalidatin! a!reements in restraint of trade. 43 Neither are the other cases relied upon #y the plaintiff-appellee applica#le to the instant case. In Pampanga Bus #o!, $nc! v! Enri%ue&,44the underta8in! of the applicant therein not to apply for the liftin! of restrictions imposed on his certificates of pu#lic convenience *as not an ancillary or incidental a!reement. The restraint *as the principal o#+ective. 7n the other hand, in Red Line Transportation #o!, $nc! v! 'on&aga,44 the restraint there in %uestion not to as8 for e<tension of the line, or trips, or increase of e%uipment A *as not an a!reement #et*een the parties #ut a condition imposed in the certificate of pu#lic convenience itself. :pon the fore!oin! considerations, 7ur conclusion is that the stipulation prohi#itin! (illarama for a period of 1, years to 9apply9 for T&: service alon! the lines covered #y the certificates of pu#lic convenience sold #y him to &antranco is valid and reasona#le. Cavin! arrived at this conclusion, and considerin! that the preponderance of the evidence have sho*n that (illa )ey Transit, Inc. is itself the alter ego of (illarama, Fe hold, as prayed for in &antranco"s third party complaint, that the said Corporation should, until the e<piration of the 1-year period a#ovementioned, #e en+oined from operatin! the line su#+ect of the prohi#ition. To avoid any misunderstandin!, it is here to #e emphasi6ed that the 1,-year prohi#ition upon (illarama is not a!ainst his application for, or purchase of, certificates of pu#lic convenience, #ut merely the operation of T&: alon! the lines covered #y the certificates sold #y him to &antranco. Conse%uently, the sale #et*een Fernando and the Corporation is valid, such that the ri!htful o*nership of the disputed certificates still #elon!s to the plaintiff #ein! the prior purchaser in !ood faith and for value thereof. In vie* of the ancient rule of caveat emptor prevailin! in this +urisdiction, *hat *as ac%uired #y Ferrer in the sheriff"s sale *as only the ri!ht *hich Fernando, +ud!ment de#tor, had in the certificates of pu#lic convenience on the day of the sale.4 =ccordin!ly, #y the 9Notice of @evy :pon &ersonalty9 the Commissioner of &u#lic -ervice *as notified that 9#y virtue of an 7rder of $<ecution issued #y the Court of First Instance of &an!asinan, the ri!hts, interests, or participation *hich the defendant, (=@$NTIN =. F$)N=ND7 A in the a#ove entitled case may have in the follo*in! realtyBpersonalty is attached or levied upon, to *it. The ri!hts, interests and participation on the Certificates of &u#lic Convenience issued to (alentin =. Fernando, in Cases Nos. /4/4, etc. ... @ines A Manila to @in!ayen, Da!upan, etc. vice versa.9 -uch notice of levy only sho*s that Ferrer, the vendee at auction of said certificates, merely stepped into the shoes of the +ud!ment de#tor. 7f the same principle is the provision of =rticle 1 44 of the Civil Code, that 9If the same thin! should have #een sold to different vendees, the o*nership shall #e transferred to the person *ho may have first ta8en possession thereof in !ood faith, if it should #e mova#le property.9 There is no merit in &antranco and Ferrer"s theory that the sale of the certificates of pu#lic convenience in %uestion, #et*een the Corporation and Fernando, *as not consummated, it #ein! only a conditional sale su#+ect to the suspensive condition of its approval #y the &u#lic -ervice Commission. Fhile section 3,1!2 of the &u#lic -ervice =ct provides that 9su#+ect to esta#lished limitation and e<ceptions and savin! provisions to the contrary, it shall #e unla*ful for any pu#lic service or for the o*ner, lessee or operator thereof, *ithout the approval and authori6ation of the Commission previously had ... to sell, alienate, mort!a!e, encum#er or lease its property, franchise, certificates, privile!es, or ri!hts or any part thereof, ...,9 the same section also provides.

... Provided, however, That nothin! herein contained shall #e construed to prevent the transaction from #ein! ne!otiated or completed #efore its approval or to prevent the sale, alienation, or lease #y any pu#lic service of any of its property in the ordinary course of its #usiness.
It is clear, therefore, that the re%uisite approval of the &-C is not a condition precedent for the validity and consummation of the sale. =nent the %uestion of dama!es alle!edly suffered #y the parties, each of the appellants has its or his o*n version to alle!e. (illa )ey Transit, Inc. claims that #y virtue of the 9tortious acts9 of defendants 1&antranco and Ferrer2 in ac%uirin! the certificates of pu#lic convenience in %uestion, despite constructive and actual 8no*led!e on their part of a prior sale e<ecuted #y Fernando in favor of the said corporation, *hich necessitated the latter to file the action to annul the sheriff"s sale to Ferrer and the su#se%uent transfer to &antranco, it is entitled to collect actual and compensatory dama!es, and attorney"s fees in the amount of &3 ,,,,.,,. The evidence on record, ho*ever, does not clearly sho* that said defendants acted in #ad faith in their ac%uisition of the certificates in %uestion. They #elieved that #ecause the #ill of sale has yet to #e approved #y the &u#lic -ervice Commission, the transaction *as not a consummated sale, and, therefore, the title to or o*nership of the certificates *as still *ith the seller. The a*ard #y the lo*er court of attorney"s fees of & ,,,,.,, in favor of (illa )ey Transit, Inc. is, therefore, *ithout #asis and should #e set aside. $use#io Ferrer"s char!e that #y reason of the filin! of the action to annul the sheriff"s sale, he had suffered and should #e a*arded moral, e<emplary dama!es and attorney"s fees, cannot #e entertained, in vie* of the conclusion herein reached that the sale #y Fernando to the Corporation *as valid. &antranco, on the other hand, +ustifies its claim for dama!es *ith the alle!ation that *hen it purchased (iIlarama"s #usiness for &4 ,,,,,.,,, it intended to #uild up the traffic alon! the lines covered #y the certificates #ut it *as rot afforded an opportunity to do so since #arely three months had elapsed *hen the contract *as violated #y (illarama operatin! alon! the same lines in the name of (illa )ey Transit, Inc. It is further claimed #y &antranco that the underhanded manner in *hich (illarama violated the contract is pertinent in esta#lishin! punitive or moral dama!es. Its contention as to the proper measure of dama!es is that it should #e the purchase price of &4 ,,,,,.,, that it paid to (illarama. Fhile Fe are fully in accord *ith &antranco"s claim of entitlement to dama!es it suffered as a result of (illarama"s #reach of his contract *ith it, the record does not sufficiently supply the necessary evidentiary materials upon *hich to #ase the a*ard and there is need for further proceedin!s in the lo*er court to ascertain the proper amount. &)$MI-$- C7N-ID$)$D, the +ud!ment appealed from is here#y modified as follo*s. 1. The sale of the two certificates of pu#lic convenience in %uestion #y (alentin Fernando to (illa )ey Transit, Inc. is declared preferred over that made #y the -heriff at pu#lic auction of the aforesaid certificate of pu#lic convenience in favor of $use#io Ferrer' 3. )eversed, insofar as it dismisses the third-party complaint filed #y &an!asinan Transportation Co. a!ainst 0ose M. (illarama, holdin! that (illa )ey Transit, Inc. is an entity distinct and separate from the personality of 0ose M. (illarama, and insofar as it a*ards the sum of & ,,,,.,, as attorney"s fees in favor of (illa )ey Transit, Inc.' 4. The case is remanded to the trial court for the reception of evidence in consonance *ith the a#ove findin!s as re!ards the amount of dama!es suffered #y &antranco' and 4. 7n e%uita#le considerations, *ithout costs. -o ordered.