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Y Leisure Phils.

v Yu (2015)
FACTS: Petitioner is a group of corporations YIL (Yats International Ltd.), YILPI (Y-I Leisure
Phils., Inc.), and YICRI (Y-I Club & Resorts, Inc). Respondent Yu is a businessman who bought
golf and country club shares owned by MADCI (Mt. Arayat Development Co.).
Upon full payment of the shares to MADCI, Yu visited the supposed site of the golf and country
club and discovered that it was non-existent. Thus, Yu asked for a refund from MADCI.
It appeared that MADCI had sold its 120 hectare land property (consisting of all its corporate
assets) to YICRI. It was said that as per the MOA between Sangil (President of MACDI) and YIL,
YIL was to receive a refund of their contribution to MACDI should MACDI fail in their obligation
to secure the necessary permits (government, environmental, and land conversion). If no refund is
granted, then YIL is authorized to sell the 120 hectare land, which it eventually did to YICRI.
It was also stated in the MOA, that ultimately, Sangil shall be responsible for the refund of the
shares sold by MACDI to third parties.
Yu then filed a complaint against MACDI for a collection of sum of money. Subsequently, he
amended his complaint to include petitioner for the claim of fraudulent transfer of the land from
MACDI to petitioner.
In its defense, petitioner stated that they only acquired the assets of MACDI and not their debts
and liabilities.
ISSUE: Whether the petitioner Yats group should be severally liable to Yu for his refund even
without fraud and bad faith.
HELD: Yes. The Nell Doctrine presents four exceptions as to when the transferee of all assets of
the transferor includes also the transfer of the debts of the latter to the former. One of which, the
concern of this case, is when the transferee becomes the continuation of the transferor.
Dean Cesar Villanueva explained that this exception contemplates the "business-enterprise
transfer." In such transfer, the transferee corporation's interest goes beyond the assets of the
transferor's assets and its desires to acquire the latter's business enterprise, including its goodwill.
In Villa Rev Transit, Inc. v. Ferrer, this exception is the same as stepping into the seller's shoes
and to enjoy the same business relations with other men. The transferee purchases not only the
assets of the transferor, but also its business, including its goodwill.
As a result of the sale, the transferor is merely left with its juridical existence, devoid of its industry
and earning capacity.
The Court held that, even without the agreement, PSTC was still liable to Caltex, Inc. based on
Section 40, as follows:
While the Corporation Code allows the transfer of all or substantially all the properties and
assets of a corporation, the transfer should not prejudice the creditors of the assignor.
The only way the transfer can proceed without prejudice to the creditors is to hold the
assignee liable for the obligations of the assignor. The acquisition by the assignee of all
or substantially all of the assets of the assignor necessarily includes the assumption of
the assignor's liabilities, unless the creditors who did not consent to the transfer
choose to rescind the transfer on the ground of fraud. To allow an assignor to transfer
all its business, properties and assets without the consent of its creditors and without
requiring the assignee to assume the assignor's obligations will defraud the creditors. The
assignment will place the assignor's assets beyond the reach of its creditors.
ESSENCE OF THE BUSINESS ENTERPRISE TRANSFER DOCTRINE
The purpose of the business-enterprise transfer is to protect the creditors of the business by
allowing them a remedy against the new owner of the assets and business enterprise. Otherwise,
creditors would be left "holding the bag," because they may not be able to recover from the
transferor who has "disappeared with the loot," or against the transferee who can claim that he is
a purchaser in good faith and for value. Based on the foregoing, as the exception of the Nell
doctrine relates to the protection of the creditors of the transferor corporation, and does not depend
on any deceit committed by the transferee -corporation, then fraud is certainly not an element of
the business enterprise doctrine.
REQUISITES
Two requisites must concur: (a) the transferor corporation sells all or substantially all of its assets
to another entity; and (b) the transferee corporation continues the business of the transferor
corporation. Both requisites are present in this case.
So, in this case, considering that MADCI was engaged in business of developing real estate, the
sale of 120 hectares of land, consisting of all its assets, renders the corporation incapable of
continuing its business enterprise. Thus, there has been a transfer of business enterprise to the
transferee.
It is also the conclusion of the Court, as per the doctrine herein stated, petitioner is solidarily liable
with MADCI, as it is inconceivable that MADCI can still refund Yu due to its loss of assets.
AS TO THE MOA
This cannot prejudice Yu. Under the Civil Code, if there is a change of debtor, the creditor must
give his consent. In this case, given that MADCI was the debtor, it follows that the liability should
be borne by the transferee-petitioner.
FREE AND HARMLESS CLAUSE
The petitioner is not left without any recourse. As in the MOA, parties may stipulate that the
transferee shall be free from any liability or debts arising from the subject of the contract. In this
case, petitioner may run after Sangil at their option [as his name appeared to be the guaranty of the
debts of MADCI to its debtors].