VILLA REY TRANSIT INC.

V. FERRER
G.R. NO: L-23893
October 29, 1968
 FACTS
Legal reasoning is applying legal principles and past
legal decisions to analyze arguPrior to 1959, Jose M.
Villarama operated Villa Rey Transit, a bus
transportation business, with certificates of public
convenience granted by the Public Service Commission
(PSC). In January 1959, he sold these certificates to
Pangasinan Transportation Company, Inc. (Pantranco)
with the condition that he would not apply for any
competing service for 10 years. Shortly after,
Villarama's wife and relatives established Villa Rey
Transit, Inc. with a capital stock of P500,000.00. They
purchased certificates of public convenience, buses, and
equipment from Valentin Fernando. The sale was
pending approval from the PSC.
ments and solve legal issues.
FACTS
However, the Sheriff of Manila levied two
certificates due to a court order in favor of
Eusebio E. Ferrer. A public sale was later
conducted, and Ferrer sold the certificates to
Pantranco. Both Fernando's corporation and
Pantranco submitted their sales for approval
to the PSC. The PSC ordered Pantranco to
provisionally operate the service under the
two certificates until the ownership issue was
resolved. Villa Rey Transit, Inc. disputed this
ruling and appealed to the Supreme Court. The
court ruled that until the ownership dispute
was settled, the Corporation should operate
the lines provisionally.
ISSUE
Does the contract
between Villarama and
Pantranco prevent
VillaRey Transit, Inc. from
offering similar services
for 10 years?
 RULING
The case at hand involves the piercing of the corporate veil. It is evident that
Villarama, the general manager of the Corporation, commingled corporate funds
with his personal finances, indicating a strong connection between him and the
Corporation. Furthermore, he used corporate money for personal expenses and
had the Corporation pay his personal accounts.
These actions undermine the separation of personal and corporate
responsibilities, a fundamental principle of the law.
The doctrine that a corporation is a distinct legal entity separate from
its members is valid in most cases, except when it is used to
perpetrate fraud, evade obligations, or engage in illegal activities. In
this situation, the Villa Rey Transit, Inc. is considered the alter ego of
Jose M. Villarama, and the restrictive clause in the contract with
Pantranco can be enforced against the Corporation. Therefore, the
Corporation can be prohibited from competing with the covenantee
due to the substantial connection between Villarama and the
Corporation.