Villa Rey Transit vs.

Ferrer Case Digest

Villa Rey Transit vs. Ferrer
[GR L-23893, 29 October 1968]

Facts: [preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus transportation,
under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted
him by the Public Service Commission (PSC) in Cases 44213 and 104651, which authorized him to
operate a total of 32 units on various routes or lines from Pangasinan to Manila, and vice-versa. On
8 January 1959, he sold the two certificates of public convenience to the Pangasinan Transportation
Company, Inc. (Pantranco), for P350,000.00 with the condition, among others, that the seller
(Villarama) "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."

Barely 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the
Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par
value of P100.00 each; P200,000.00 was the subscribed stock; 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
(10 March 1959), the Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49
buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which
P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final
approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the
balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."

The very same day that the contract of sale was executed, the parties thereto immediately applied
with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the
vendee Corporation to operate the service therein involved. On 19 May 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it may be modified or revoked by the
Commission at any time, shall be subject to whatever action that may be taken on the basic
application and shall be valid only during the pendency of said application." Before the PSC could
take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July
1959, levied on 2 of the five certificates of public convenience involved therein, namely, those issued
under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of First
Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin
Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a
public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer
was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the
two certificates of public convenience to Pantranco, and jointly submitted for approval their
corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized
provisionally to operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case
124057, and that of Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the
meantime, to wit, on 22 July 1959, the PSC issued an order disposing that during the pendency of
the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one
to operate provisionally the service under the two certificates embraced in the contract between
Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated
the matter to the Supreme Court, which decreed, after deliberation, that until the issue on the
ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.
On 4 November 1959, 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 public convenience (PSC
Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by the latter to
Pantranco, against Ferrer, Pantranco and the PSC. The Corporation prayed therein that all the
orders of the PSC relative to the parties' dispute over the said certificates be annulled. 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. The case
against the PSC was dismissed. All parties appealed.

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.
P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F.
JAVIER, petitioners, vs. HON. COURT OF APPEALS, PAIC SAVINGS &
MORTGAGE BANK, INC., SHERIFFS GRACE BELVIS, SOFRONIO VILLARIN, PIO
MARTINEZ and NICANOR BLANCO, respondents.

Facts:
- May 1984: PC Javier and Sons and Spouses Javier filed a complaint for annulment of
mortgage and foreclosure with prelim injunction against PAIC Savings and Mortgage
Bank + supplemental complaint to include defendants (sheriffs)
- Feb 1981: PC Javier and Sons applied with First Summa Savings and Mortgage Bank
later renamed PAIC Savings a loan accommodation under Industrial Guarantee Loan
Fund (P1.5M)
o March 1981: Javier was advised that loan application was approved and same to
be forwarded to Central Bank for processing and release
o CB released loan to PAIC in two tranches of P750k each released to Javier
Corp, but from second tranche release, P250k was deducted and deposited in
name of Javier Corp under time deposit
o Javier Corp claims loan releases were delayed, P250k was deducted from IGLF
loan and placed under time deposit + they were never allowed to withdraw the
proceeds of the itme deposit because PAIC intended this time deposit as
automatic payments on accrued principal and interest due on loan
o PAIC clais only final proceeds of the loan was delayed, because of shortfall in
collateral cover of Javier Corps loan second tranche was then relased after
firm commitment by Javier Corp to cover collateral deficiency through opening
time deposit using portion of loan proceeds (P250k) and in compliance with
their commitment to submit additional security and open time deposit, Javier
executed chattel mortgage over some machineries in favor of PIAC + when Javier
Corp defaulted in payment of its loan, PAIC sent demand letter; sent a second,
informing foreclosure; finally initiated extrajudicial foreclosure of real estate
mortgage and accordingly auction sale was executed by sheriffs
o Instant complaint to forestall extrajudicial foreclosure of sale of piece of land =
temporarily restrained by RTC
o RTC: declared First Summa nd PAIC as one and the same + Javier Corp liable to
bank for unpaid balance of loans + extrajudicial foreclosure justified because
loans were due and demandable when foreclosure proceedings commenced in
April 1984, hence this appeal by certiorai.
- Issue: WON First Summa Savings and Mortgage Bank and PAIC Savings are one and the
same entity; whether their obligation is already due and demandable at the time
commencement of extrajudicial foreclosure took place.
o Is Javier corp legally justified in withholding amortized payments to respondent
bank until they have been properly notified of change in corporate name? (claim
never having received formal notice of alleged change of name + first notice of
change of name was when bank presented witness Michael Caguioa on April
1990, where he presented SEC Certificate of Filing Amended Articles of
Incorporation of respondent bank)?
o Ruling: No
There exists no requirement under law or regulation ordering a bank
that changes its corporate name to formally notify all its debtors
Court cannot impose on bank that changes in corporate name must
notify debtor of such change = tantamount to judicial legislation; such
notification is discretionary on bank
Although no evidence showing bank furnished Javier Corp with official
documents of change of name, evidence abound that they ha dnotice
Letter of accountant of Javier Corp addressed to bank: we obtained from
the FORMER First Summa
Board of resolution of Javier Corp signed by Pablo Javier Sr auhorizing
him to execute a chattle mortgage over certain machinery in favor of
PAIC Savings and Mortgage Bank
Secretarys certificate signed by Fortunato Gabriel, Corp Secretary of
Javier Corp, certifying that a board resolution was passed authorizing
Pablo Javier Sr to execute a chattel mortgage on corporations equipment
to serve as collateral to cover IGLF Loan with PAIC Saivings
Undated letter signed by Pablo Javier Sr and addressed to PAIC Savings
authorzing Mr Victor Javier, Gen Manager, to secure from PAIC Savings
certain documents for his signature
DOCTRINE: a change in the corporate name does not make a new
corporation, whether effected by a special act or under a general
law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon such change in
its name, is in no sense a new corporation nor the successor of the
original corporation. It is the same corporation with a diff name,
and its character is in no respect changed.