Villa Rey Transit vs.

Ferrer Facts:

Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit,
pursuant tocertificates of public convenience granted him by the Public Service Commission which
authorized him to operate atotal 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 PangasinanTransportation Company, Inc. for P 350,000.00 with
the condition, among others, that the seller "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. was
organized. Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators and treasurer
as well.

In less than a month after its registration with the Securities and Exchange Commission the Corporation,
on April 7,1959, bought
five
certificates of public convenience, forty-nine buses, tools and equipment from one ValentinFernando.

The very same day that the aforementioned contract of sale was executed, the parties thereto
immediately appliedwith the PSC for its approval, with a prayer for the issuance of a provisional
authority in favor of the vendeeCorporation to operate the service therein involved.

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 basicapplication 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,levied on
two of the five certificates of public convenience
involved therein, pursuant to a writ of execution issued bythe Court of First Instance of Pangasinan in
Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgmentcreditor, against Valentin Fernando,
defendant, judgment debtor. A public sale was conducted by the Sheriff of thesaid
two
certificates of public convenience and Ferrer was the highest bidder, and a certificate of sale was issued
inhis name.

Thereafter, Ferrer sold the
two
certificates of public convenience to Pantranco, and jointly submitted for approvaltheir corresponding
contract of sale to the PSC.Issue: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 SERVICEIDENTICAL 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?Held:1.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. If the prohibition is to be applied only to the
acquisition of new certificates of public convenience thru anapplication with the Public Service
Commission, this would, in effect, allow the seller just the same to compete withthe buyer as long as his
authority to operate is only acquired thru transfer or sale from a previous operator, thusdefeating the
intention of the parties.
2.The 10-year restrictive clause in the contract between Villarama and Pantranco, while in thenature of
an agreement suppressing competition, it is, however, merely ancillary orincidental to the main
agreement which is that of sale. The suppression or restraint is onlypartial or limited: first, in scope, it
refers only to application for TPU by the seller incompetition 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 bythe certificates sold.3.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 latterand Pantranco is also enforceable and binding against the said Corporation.