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 Corp’s 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)?
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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 Secretary’s 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 corporation’s 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.
