Villa Rey Transit, Inc. sued to annul the sheriff's sale of two transit certificates to Ferrer that had originally belonged to Valentin Fernando. The Supreme Court held that (1) Villa Rey Transit was essentially the alter ego of its majority shareholder Jose Villarama, as he controlled its finances and operations; (2) using the corporation to evade obligations is not permitted, and the non-compete clause Villarama agreed to in selling certificates to Pantranco was binding on Villa Rey Transit as his alter ego; (3) therefore, the restrictive clause in Villarama's contract with Pantranco was enforceable against Villa Rey Transit.
Villa Rey Transit, Inc. sued to annul the sheriff's sale of two transit certificates to Ferrer that had originally belonged to Valentin Fernando. The Supreme Court held that (1) Villa Rey Transit was essentially the alter ego of its majority shareholder Jose Villarama, as he controlled its finances and operations; (2) using the corporation to evade obligations is not permitted, and the non-compete clause Villarama agreed to in selling certificates to Pantranco was binding on Villa Rey Transit as his alter ego; (3) therefore, the restrictive clause in Villarama's contract with Pantranco was enforceable against Villa Rey Transit.
Villa Rey Transit, Inc. sued to annul the sheriff's sale of two transit certificates to Ferrer that had originally belonged to Valentin Fernando. The Supreme Court held that (1) Villa Rey Transit was essentially the alter ego of its majority shareholder Jose Villarama, as he controlled its finances and operations; (2) using the corporation to evade obligations is not permitted, and the non-compete clause Villarama agreed to in selling certificates to Pantranco was binding on Villa Rey Transit as his alter ego; (3) therefore, the restrictive clause in Villarama's contract with Pantranco was enforceable against Villa Rey Transit.
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.