G.R. No. L-23893. October 29, 1968
VILLA REY TRANSIT, INC., PLAINTIFF-APPELLANT, VS. EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC., AND PUBLIC SERVICE COMMISSION, DEFENDANTS, EUSEBIO E. FERRER AND PANGAS…
ANGELES, J.:
This is a tri-party
appeal from the decision of the Court
of First Instance of Manila, Civil Case No. 41845, declaring null and void the
sheriff’s sale of two certificates of public convenience in favor of
defendant Eusebio E. Ferrer
and the subsequent sale thereof by the latter to defendant Pangasinan
Transportation Co., Inc.; declaring the plaintiff Villa Rey
Transit, Inc., to be the lawful owner of the said certificates of public
convenience; and ordering the private defendants, jointly and severally, to pay
to the plaintiff, the sum of P5,000.00 as and for attorney’s fees. The case against the PSC was dismissed.
The rather ramified
circumstances of the instant case can best be understood by a chronological
narration of the essential facts, to wit:
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, for short) in Cases Nos. 44213 and 104651, which authorized him to
operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the
aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as
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 three months
thereafter, or on March 6, 1959, a corporation called Villa Rey
Transit, Inc. (which shall be referred to hereafter as 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 (March 10, 1959), the Corporation, on April 7, 1959, bought five
certificates of public convenience, forty-nine 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
aforementioned 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.[1] On May 19, 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 July 7,
1959, levied on two of the five certificates of public convenience
involved therein, namely those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by
the Court of First Instance of Pangasinan in Civil
Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the
records of the PSC. On July 16,
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.[2] 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
No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint
hearing. In the meantime, to wit, on July 22,
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,[3] 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 November 4, 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 Nos. 59494 and 63780) in favor of the
defendant Ferrer, and the subsequent sale thereof by
the latter to Pantranco, against Ferrer,
Pantranco and the
PSC. The plaintiff Corporation
prayed therein that all the orders of the PSC relative to the parties’ dispute
over the said certificates be annulled.
In separate answers, the
defendants Ferrer and Pantranco averred that the
plaintiff Corporation had no valid title to the certificates in question because the contract pursuant
to which it acquired them from
Fernando was subject to a suspensive condition – the
approval of the PSC – which has not yet been fulfilled, and, therefore, the Sheriff’s levy and the consequent sale at public auction of the
certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a
superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose M. Villarana, alleging that Villarama
and the Corporation, are one and the same; that Villarama
and/or the Corporation was disqualified
from operating the two certificates in question by virtue of the aforementioned
agreement between said Villarama and Pantranco, which stipulated that 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.”
Upon the joinder of the issues in both the complaint and third-party
complaint, the case was tried, and thereafter decision was rendered in the
terms as above stated.
As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal.
Pantranco disputes the correctness of
the decision insofar as it holds that
Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from
Jose M. Villarama;
that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and void, that the Sheriff’s
sale of July 16, 1959, is likewise
null and void; and the failure to award damages in its favor and against Villarama.
Ferrer, for his part, challenges the decision insofar as it holds that the
sheriff’s sale is null and void; and the sale of the two certificates in
question by Valentin Fernando to the Corporation, is
valid. He also assails the award of
P5,000.00 as attorney’s fees in favor of the Corporation, and the failure to
award moral damages to him as prayed for in his counterclaim.
The Corporation, on the other hand, prays for a review of that
portion of the decision awarding only P5,000.00 as attorney’s fees, and
insisting that it is entitled to an award of P100,000.00 by way of
exemplary damages.
After a careful study of the facts obtaining in the case, the
vital issues to be resolved are: (1)
Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the
former “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”, apply to new lines only or does it include
existing lines?; (2) Assuming that said stipulation covers all kinds of lines,
is such stipulation valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind
the Corporation?
For convenience, We
propose to discuss the foregoing issues by starting with the last proposition.
The evidence has disclosed that Villarama, albeit was not an
incorporator or stockholder of the Corporation, alleging that he did not become
such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with
the least subscribed number of shares, and was elected treasurer of the
Corporation. The finances of the
Corporation which, under all concepts in the law, are supposed to be under the control and administration of
the treasurer keeping them as trust fund for the Corporation, were,
nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared to be the actual owner-treasurer of
the business without regard to the
rights of the stockholders. The
following testimony of Villarama,[4] together with the other evidence on record, attests to that effect:
“Q. – Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the bank regarding the initial opening
deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five
Thousand Pesos was a check drawn by yourself personally. In the direct examination you told the Court
that the reason you drew a check for Eighty-Five Thousand Pesos was because you
and your wife, or your wife, had spent the money of the stockholders given to
her for incorporation. Will you please
tell the Honorable Court if you knew at the time your wife was spending the
money to pay debts, you personally know she was spending the money of the
incorporators?
“A. – You know my money and my wife’s money are one. We
never talk about those things.
“Q. – Doctor, your answer then is that since your money and
your wife’s money are one money and you did not know when your wife was paying
debts with the incorporator’s money?
“A. – Because sometimes she uses my money and sometimes the
money, given to her she gives to me and I deposit the money.
“Q. – Actually, aside from your wife, you were also the custodian of some of the
incorporators here, in the beginning?
“A. – Not necessarily, they give to my wife and when my wife
hands to me I did not know it belonged to the incorporators.
“Q. – It supposes then your wife gives you some of the money received
by her in her capacity as treasurer of the corporation?
“A. – Maybe.
“Q. – What did you do with the money, deposit in a regular
account?
“A. – Deposit in my account.
“Q. – Of all the money given to your wife, she did not receive
any check?
“A. – I do not remember.
“Q. – Is it
usual for you, Doctor, to be given Fifty Thousand Pesos without even asking
what is this?
x x x x x x x x x x
JUDGE: Reform the question.
“Q. – The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your
wife give you Fifty-Two Thousand Pesos?
“A. – I have testified before that sometimes my wife gives me
money and I do not know exactly for what.”
The evidence further show
that the initial cash capitalization of the corporation of P105,000.00 was
mostly financed by Villarama. Of the P105,000.00 deposited in the First
National City Bank of New York, representing the initial paid-up capital of the Corporation,
P85,000.00 was covered by Villarama‘s personal
check. The deposit slip for the said amount of P105,000.00 was admitted in
evidence as Exh. 23, which shows on its face that P20,000.00 was paid in
cash and P85,000.00 thereof was covered by Check No. F-50271 of the
First National City Bank of New York. The testimonies of Alfonso Sancho[5]
and Joaquin Amansec,[6]
both employees of said bank, have
proved that the drawer of the check was Jose Villarama
himself.
Another witness, Celso Rivera, accountant of the Corporation, testified that
while in the books of the corporation there
appears an entry that the treasurer received P95,000.00 as second installment
of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first
installment of the offer for second subscriptions worth P200,000.00 from the
original subscribers, yet Villarama directed him
(Rivera) to make vouchers liquidating the sums.[7] Thus, it was made to appear that the
P95,000.00 was delivered to Villarama in payment for
equipment purchased from him, and the P100,000.00 was loaned as advances to the
stockholders. The said accountant, however,
testified that he was not aware of any amount of money that had actually
passed hands among the parties involved,[8] and actually the only money of the
corporation was the P105,000.00 covered by the deposit slip Exh.
23, of which, as mentioned above, P85,000.00 was paid by Villarama‘s personal check.
Further, the evidence show that when the Corporation was in its
initial months of operation, Villarama purchased and
paid with his personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said
purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and
993621-B, respectively. These checks
have been sufficiently established by Fausto Abad, Assistant Accountant
of Manila Trading & Supply Co., from which the trucks were purchased[9] and Aristedes
Solano, an employee of the Philippine Bank of Commerce,[10] as having been drawn by Villarama.
Exhibits 6 to 19 and Exh. 22, which are photostatic
copies of ledger entries and vouchers showing that Villarama
had co-mingled his personal funds and transactions with those made in the name
of the Corporation, are very illuminating evidence. Villarama has
assailed the admissibility of these exhibits, contending that no evidentiary
value whatsoever should be given to them since “they were merely photostatic copies of the originals, the best evidence being
the originals themselves.”
According to him, at the time Pantranco
offered the said exhibits, it was the most likely possessor of the originals
thereof because they were stolen from the files of the Corporation and only Pantranco was able to produce the alleged photostat copies thereof.
Section 5 of Rule 130 of the Rules of Court provides for the
requisites for the admissibility of secondary evidence when the original is in
the custody of the adverse party, thus:
(1) opponent’s possession of the original; (2) reasonable notice to
opponent to produce the original; (3) satisfactory proof of its existence; and
(4) failure or refusal of opponent to produce the original in court.[11]
Villarama has practically admitted the second and
fourth requisites.[12]
As to the third, he admitted their previous existence in the files of the
Corporation and also that he had seen some of them.[13]
Regarding the first element, Villarama’s theory is that
since even at the time of the issuance of the subpoena duces tecum, the
originals were already missing,
therefore, the Corporation was no longer in possession of the same. However, it is not necessary for a party seeking to introduce secondary evidence to
show that the original is in the actual possession of his adversary. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his control.
Neither
is it required that the party entitled to the custody of the instrument should, on being notified to
produce it, admit having it in his possession.[14] Hence, secondary evidence is admissible where
he denies having it in his possession.
The party calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is
“when the original has been lost,
destroyed, or cannot be produced in court.”[15] The originals of
the vouchers in question must be deemed to have been lost, as even the
Corporation admits such loss. Viewed upon this light, there can be no doubt
as to the admissibility in evidence of Exhibits 6 to 19 and 22.
Taking
account of the foregoing evidence, together
with Celso Rivera‘s testimony,[16] it would Appear
that: Villarama
supplied the organization expenses and the assets of the Corporation, such as
trucks and equipments;[17] 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;[18] Villarama made use of the money of the Corporation and
deposited them to his private accounts;[19] and the Corporation paid his personal
accounts.[20]
Villarama himself admitted that he mingled the
corporate funds with his own money.[21] He also admitted that gasoline purchases of the Corporation were
made in his name[22] because “he had existing account with Stanvac which was properly secured and he wanted the
Corporation to benefit from the rebates that he
received.”[23]
The
foregoing 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.
It
is significant that not a single
one of the acts enumerated above as proof of Villarama’s
oneness with the Corporation has
been denied by him. On the contrary, he
has admitted them with offered excuses.
Villarama has admitted, for instance, having paid
P85,000.00 of the initial capital of the Corporation with the lame excuse that
“his wife had requested him to reimburse the amount entrusted to her by
the incorporators and which she had used to pay the obligations of Dr. Villarama (her husband) incurred while he was still the
owner of Villa Rey Transit, a single
proprietorship.” But with his admission that he had received P350,000.00
from Pantranco for the sale of the two certificates
and one unit,[24] it becomes difficult to accept Villarama’s explanation that he and his wife, after consultation,[25] spent the money of
their relatives (the stockholders) when they were supposed to have their own
money. Even if Pantranco
paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to have deposited said check in his account and
issued his own check to pay his obligations.
And there is no evidence adduced that the said amount of P350,000.00 was all spent or
was insufficient to settle his prior obligations in his business, and in the
light of the stipulation in the deed of sale between Villarama and Pantranco that
P50,000.00 of the selling price was earmarked for the payments of accounts due
to his creditors, the excuse appears unbelievable.
On
his having paid for purchases by the Corporation of trucks from the Manila
Trading & Supply Co. with
his personal checks, his reason was that he was only sharing with the
Corporation his credit with some companies.
And his main reason for mingling his funds with that of the Corporation
and for the latter’s paying his private bills is that it would be more convenient
that he kept the money to be used in paying the registration fees on time, and
since he had loaned money to the Corporation, this would be set-off by the
latter’s paying his bills. Villarama admitted, however, that the corporate funds in
his possession were not only for registration fees but for other important obligations which were not
specified.[26]
Indeed, while Villarama was not the Treasurer of the Corporation but was,
allegedly, only a part-time Manager,[27] he admitted not only having held the corporate
money but that he advanced and lent funds for the Corporation, and yet there
was no Board Resolution allowing it.[28]
Villarama’s explanation on the matter of his involvement
with the corporate affairs of the Corporation only renders more credible Pantranco’s claim that his control over the corporation,
especially in the management and disposition of its funds, was so extensive
and intimate that it is impossible to segregate and identify which money
belonged to whom. 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.[29] 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,[30] 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.
Upon the foregoing
considerations, We are of the opinion, and so hold, that the preponderance of
evidence have shown that 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 promissor may not make use of a corporate entity as a means
of evading the obligation of his covenant.[31] Where the Corporation is substantially the alter
ego of the covenantor to the restrictive
agreement, it can be enjoined from competing with the covenantee.[32]
The Corporation contends
that even on the supposition that Villa Rey Transit,
Inc. and Villarama are one and the same, the
restrictive clause in the contract between Villarama
and Pantranco does not include the purchase of
existing lines but it only applies to application for new lines. The clause in dispute reads thus:
“(4) The SELLER shall
not, for a period of ten (10) years
from the date of this sale apply for any TPU service identical or competing with the BUYER.” (Underscoring supplied)
As
We read the disputed clause, it is evident from the context thereof that the
intention of the parties was to eliminate the seller as a competitor of the
buyer for
ten years along the lines of operation covered by the certificates of public convenience subject
of their transaction. The word “apply” as broadly used has for frame of reference, a service by the seller on
lines or routes that would compete with the buyer along the routes acquired by
the latter. In this jurisdictions,
prior authorization is needed before anyone can operate a TPU service,[33] whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the parties was to prevent the seller from
conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for authorization to
operate along such lines for the duration of such period.[34]
If the prohibition is to be applied only to the acquisition of
new certificates of public convenience thru an application with the Public
Service Commission, this would, in effect, allow the seller just the same to
compete with the buyer as long as his authority to operate is only acquired
thru transfer or sale from a previous operator, thus defeating the intention of
the parties. For what would prevent the
seller, under the circumstances, from having a representative or dummy apply in
the latter’s name and then later on transferring the same by sale to the
seller? Since stipulations in a contract
is the law between the contracting parties,
“Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.” (Art. 19, New Civil Code.)
We
are not impressed of Villarama’s contention that the
re-wording of the two previous drafts of the contract of sale between Villarama and Pantranco is
significant in that as it now appears, the parties intended to effect the least
restriction. We are persuaded, after an
examination of the supposed drafts, that the scope of the final stipulation,
while not as long and prolix as those in the drafts, is just as broad and
comprehensive. At most, it can be said
that the re-wording was done merely for brevity and simplicity.
The
evident intention behind the restriction was to eliminate the seller as a
competitor, and this must be, considering such factors as the good will[35] that the seller had already gained from the riding
public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on
Contracts, has this to say:[36]
“When one buys the business of another as a going concern, he
usually wishes to keep it going; he wishes to get the location, the building,
the stock in trade, and the customers.
He wishes to step into the seller’s shoes and to enjoy the same business
relations with other men. He is willing
to pay much more if he can get the ‘good will’ of the business, meaning by this
the good will of the customers, that they may continue to tread the old footpath to his doer
and maintain with him the business relations enjoyed by the seller.
“x x x In order
to be well assured of this, he obtains and pays for the seller’s promise not to
reopen business in competition with the business sold.”
As to whether or not such a stipulation
in restraint of trade is valid, our jurisprudence on the matter[37]
says:
“The law concerning contracts which tend to restrain business
or trade has gone through a long series of changes from time to time with the changing condition of trade and
commerce, With trifling exceptions, said changes have been a continuous
development of a general rule. The
early cases show plainly a disposition to avoid and annul all contract which
prohibited or restrained any one from using a lawful trade ‘at any time or at
any place’, as being against the benefit 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 think 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. A contract, however, which restrains a man from
entering into business or trade without either a limitation as to time
or place, will be held invalid.
“The public welfare of course must always be considered and if it be not involved and the restraint upon
one party is not greater than protection to the other requires,
contracts like the one we are discussing will be sustained. The general
tendency, we believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting
parties. If the contract is reasonably necessary to protect the
interest of the parties, it will be
upheld.” (Underscoring supplied.)
Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing competition,
it is,
however, merely ancillary or
incidental to the main agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to
application for TPU by the seller in
competition with the lines sold to the buyer; second, in duration, it
is only for ten (10) years; and third, with respect to situs
or territory, the restraint is only
along the lines covered by the certificates sold. In view of these limitations, coupled with
the consideration of
P350,000.00 for just two certificates of public convenience, and considering, furthermore, that the disputed
stipulation is only incidental to a main agreement, the same is reasonable and it is not harmful nor obnoxious to public service.[38] It does not appear that the ultimate result of the clause or stipulation
would be to leave solely to Pantranco the right to
operate along the lines in question, thereby establishing a monopoly or
predominance approximating thereto. We believe the main purpose of the restraint was to
protect for a limited time the
business of the buyer.
Indeed, the evils of monopoly, are farfetched here. There can be no danger of price controls or
deterioration of the service because of the close supervision of the Public
Service Commission.[39]
This Court had stated long ago,[40]
that “when one devotes his property to a use in which the public has an interest,
he virtually grants
to the public an interest in that use and submits it to such public use under
reasonable rules and regulations to be fixed by the Public Utility
Commission.”
Regarding that aspect of the clause that it is merely
ancillary or incidental to a lawful agreement, the underlying reason sustaining
its validity is well explained in 36 Am. Jur.
537-539, to wit:
“x x
x Numerous
authorities hold that a covenant which is
incidental to the sale and transfer of a trade or business, and which purports
to bind the seller not to engage in the
same business in competition with
the purchaser, is lawful and enforceable.
While such covenants are designed to prevent competition on the part of the seller, it is ordinarily
neither their purpose nor effect to stifle competition generally in the
locality, nor to prevent it at all in a way or to an extent injurious to the
public. The business in the hands of the
purchaser is carried on just as
it was in the hands of the seller; the former merely takes the place of the
latter; the commodities of the trade are as open to the public as they were before;
the same competition exists as existed before; there is the same employment
furnished to others after as before;
the profits of the business go as they did before to swell the sum of public
wealth; the public has the same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a
manufacturing plant.”
The reliance by the lower
court on the case of Red Line
Transportation Co. v. Bachrach,[41] and finding that the stipulation is illegal
and void seems misplaced. In the said Red
Line case, the agreement therein
sought to be enforced was virtually a division of territory between two
operators, each company imposing upon itself an obligation not to
operate in any territory covered by
the routes of the other. Restraints of
this type, among common carriers, have always been covered by the general rule
invalidating agreements in restraint of trade.[42]
Neither are the other
cases relied upon by the plaintiff-appellee
applicable to the instant case. In Pampanga Bus Co. Inc. v. Enriquez,[43] the undertaking of the applicant therein not
to apply for the lifting of restrictions imposed on his certificates of public
convenience was not an ancillary or incidental agreement. The restraint was the principal
objective. On the other hand, in Red
Line Transportation Co. Inc. v. Gonzaga,[44] the restraint there in question not to ask
for extension of the line, or trips, or increase of equipment – was not
an agreement between the parties but a condition imposed in the certificate of
public convenience itself.
Upon the foregoing
considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to “apply” for TPU service along the lines covered
by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that
the preponderance of the evidence have shown that Villa Rey
Transit, Inc. is itself the alter ego of Villarama,
We hold, as prayed for in Pantranco’s third
party complaint, that the said Corporation should, until the expiration of the
1-year period abovementioned, be enjoined from operating the lines subject of
the prohibition.
To avoid any
misunderstanding, it is here to be emphasized
that the 10year prohibition upon Villarama is not against his application for, or purchase
of, certificates of public convenience, but merely the operation of TPU along
the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between Fernando and the Corporation is
valid, such that the rightful ownership of the disputed certificates still
belongs to the plaintiff being the prior purchaser in good faith and for value
thereof. In view of the ancient rule of caveat
emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff’s sale was only the right which
Fernando, judgment debtor, had in the certificates of public convenience on the
day of the sale. [45]
Accordingly, by the
“Notice of Levy Upon Personalty“ the
Commissioner of Public Service was notified that “by virtue of an Order of
Execution issued by the Court of
First Instance of Pangasinan, the rights,
interests, or participation which the defendant, VALENTIN A. FERNANDO – in the above
entitled case may have in the following realty/personalty
is attached or levied
upon, to wit: The rights, interests
and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. x x x Lines – Manila to Lingayen, Dagupan, etc. vice
versa.” Such notice of levy only shows
that Ferrer, the vendee at auction of said certificates,
merely
stepped into the shoes of the judgment debtor. Of the same
principle is the provision of Article 1544 of the Civil Code, that “If the same
thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.”
There
is no merit in Pantrenco and Ferrer’s theory that the sale of the certificates of public
convenience
in question, between the Corporation and Fernando, was not consummated, it
being only a conditional sale subject to the suspensive
condition of its approval by the Public Service Commission. While section 20(g) of the Public Service Act
provides that “subject to established limitation and exceptions and saving
provisions to the contrary, it shall be unlawful for any public service or for the owner,
lessee or operator thereof, without the approval and authorization of the Commission previously had
x x x to sell, alienate,
mortgage, encumber or lease its property, franchise, certificates,
privileges, or rights or any part thereof, x x x,” the same section also provides:
“x x x
Provided, however, That nothing herein contained shall be construed to prevent
the transaction from being negotiated or completed before its approval or to
prevent the sale, alienation, or lease
by any public service of any of its property in the ordinary course of
its business.”
It is clear,
therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation
of the sale.
Anent
the question of damages allegedly suffered by the parties, each of the
appellants has its or his own version to allege.
Villa Rey
Transit, Inc. claims that by virtue of the “tortious
acts” of defendants (Pantranco and Ferrer) in acquiring the certificates of public
convenience in question, despite constructive and actual knowledge on their
part of a prior sale executed by Fernando in favor of the said corporation, which
necessitated the latter to file the action to annul the sheriff’s sale to Ferrer and the subsequent transfer to Pantranco,
it is entitled to collect actual and compensatory damages, and attorney’s fees
in the amount of P25,000.00. The
evidence on record, however, does not clearly show that said defendants acted
in bad faith in their acquisition of the certificates in question. They believed that because the bill of sale
has yet to be approved by the Public Service Commission, the transaction was not
a consummated sale, and, therefore,
the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney’s
fees of P5,000.00 in favor of Villa Rey Transit, Inc.
is, therefore, without basis and should be set aside.
Eusebio Ferrer’s charge
that by reason of the filing of the action to annul the sheriff’s sale, he had
suffered and should be awarded moral, exemplary damages and attorney’s fees,
cannot be entertained, in view of the conclusion herein reached that the sale
by Fernando to the Corporation was valid.
Pantranco, on the other hand, justifies its claim for
damages with the allegation that when it purchased Villarama’s
business for P350,000.00, it intended to build up the traffic along the lines
covered by the certificates but it was not afforded an opportunity to do so
since barely three months had elapsed when the contract was violated by Villarama operating along the same lines in the name of
Villa Rey Transit, Inc. It is further claimed by Pantranco
that the underhanded manner in which Villarama violated
the contract is pertinent in establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the
purchase price of P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco’s claim of entitlement to damages it suffered as
a result of Villarama’s breach of his contract with
it, the record does not sufficiently supply the necessary evidentiary materials
upon which to base the award and there is need for further proceedings in the
lower court to ascertain the proper amount.
PREMISES CONSIDERED, the judgment appealed from is hereby
modified as follows:
1. The sale of the two
certificates of public convenience in question by Valentin
Fernando to Villa Rey
Transit, Inc. is declared preferred over that made by the Sheriff at
public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;
2. Reversed, insofar as it
dismisses the third-party complaint filed by Pangasinan
Transportation Co. against Jose M. Villarama, holding
that Villa Rey Transit, Inc. is an entity distinct
and separate from the personality of Jose M. Villarama,
and insofar as it awards the sum of P5,000.00
as attorney’s fees in favor of Villa Rey Transit,
Inc.;
3. The case is remanded to the trial court for the reception of
evidence in consonance with the above findings
as regards the amount of damages suffered by Pantranco;
and
4. On equitable
considerations, without cots. So
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Ruiz Castro, and Fernando, JJ., concur.
Sanchez and Capistrano, JJ., took no part.
Zaldivar, J., on leave.
[1]
Application for approval of sale docketed as PSC Case No. 124057.
[2]
PSC Case No. 126278.
[3]
G.R. Nos. L-17684-85, promulgated May 30,
1962.
[4]
TSN, pp. 1649-1651, Session of April 8,
1963.
[5]
TSN, pp. 1210, 1217-1218, Session of Oct.
8, 1962.
[6]
TSN, p. 1262, Session of Nov. 8, 1962.
[7]
TSN, pp. 947-948, Session of Sept. 3,
1962; TSN, pp. 1022, 1025, 1027-1029, Session of Sept. 7, 1962.
[8]
TSN, pp. 948-949.
[9]
TSN, pp. 899, 901, Session of Aug. 27,
1962.
[10]
TSN, pp. 1227-1228, Session of Oct. 8, 1962.
[11]
Francisco, Evidence, 1964 ed. p. 113.
[12]
Plaintiff-appellee’s Brief, pp. 45-46.
[13]
TSN, pp. 1568-1569, Session of April 8,
1963.
[14]
See the Revised Rules of Court – Evidence by Francisco, 1964 ed., pp. 113-114.
[15]
Sec. 2(a), Rule 130, Rules of Court.
[16]
It was Celso Rivera who prepared these documents as
admitted by Villarama, TSN, pp. 1580-1581, Session of
April 8, 1963.
[17]
Exh. 6.
[18]
Exhs. 8 to 8-C.
[19]
Exhs. 7 to 7-C.
[20]
Exhs. 10 to 19, 22; TSN, pp. 1709-1710, Session of April 16, 1963.
[21]
TSN, p. 1625, Session of April 8, 1963.
[22]
TSN, p. 1646, Session of April 8, 1963.
[23]
Brief for Plaintiff-appellee, p. 49.
[24]
TSN, pp. 1593, 1658, Session of April
8, 1963.
[25]
TSN, pp. 1660-1661, ditto.
[26]
TSN, pp. 1699-1718, Session of April
16, 1963.
[27]
TSN, p. 1714, Session of April 16,
1963.
[28]
TSN, pp. 1627-1628, Session of April 8, 1963.
[29]
Borja v. Vasquez, 74 Phil. 56.
[30]
Koppel Phil. v. Yatco, 77 Phil. 496; Lidell & Co. v. Collector, G.R. No. L-9687, June 30, 1961; Commissioner v.
Norton & Narrison, G.R. No. L-17618, Aug. 31, 1964; Guevarra,
Phil. Corp. Law, 1961 ed., p. 7.
[31]
36 Am. Jur. 548; 18 Am. Jur.
2nd 563-564.
[32]
94 A.L.R. 346, 348.
[33]
Secs. 15 and 18, Com. Act 146.
[34]
The 10-year period will expire on January, 1969. Hence, it is practically over.
[35]
Recent cases have enlarged the concept of good will over the behavioristic resort of old customers to the old place of
business. It is now recognized that
“It may include in addition to those factors all that goes with a business
in excess of its mere capital and physical value, such as reputation for
promptness, fidelity, integrity, politeness, business sagacity and commercial
skill in the conduct of its affairs, solicitude for the welfare of customers
and other tangible elements which contribute to successful commercial venture.” (Footnotes to p. 4592,
Williston on Contracts, Vol. 5, citing cases.)
[36]
Corbin on Contracts, Vol. 6, Sec. 1385, p. 483.
[37]
Del Castillo v. Richmond, 45 Phil. 683, citing Anchor Electric Co. v.
Hawkes, 171 Mass. 101; Alger v. Tacher, 19 Pickering (Mass.) 51; Taylor v.
Blanchard, 13 Allen (Mass.) 370; Lurkin Rule Co. v.
Fringeli, 57 Ohio State 596; Fowle
v. Park, 131 U.S. 88; 97; Diamond Match Co. v. Reeber, 106 N.Y. 473; National Benefit Co. v. Union
Hospital Co., 45 Minn. 272; Swigert & Howard v.
Tilden, 121 Iowa, 650. See also Ollendorf
v. Abrahamson, 38 Phil. 585.
[38]
Clearly, the greater part of said consideration was to compensate Villarama for not competing with Pantranco
for at least 10 years, within which period the latter would put up 31 other
units (certificates contained authorization for 32 units), train drivers
thereof and incur such other expenses, so as to put the service along the lines
acquired in good, operating and competing condition.
[39]
See Secs. 16-C, 19 and 20-A, Com. Act 146.
[40]
National Coal Co. v. Public Utility Commission, 47 Phil. 356, 360.
[41]
67 Phil. 577.
[42]
See Negros
Ice & Cold Storage Co. Inc. v. PSC, 90 Phil. 138. See
also 58 C.J.S. 1051.
[43]
66 Phil. 645.
[44]
G.R. No. L-10834, April 28, 1960.
[45]
See secs. 25 & 26, Rule 39, Rules of Court.