XVII. CORPORATE COMBINATIONS Reyes et al. v. Blouse et al. (1952) 1) Plaintiffs, as minority stockholders of the LAGUNA TAYABAS BUS CO.
, sued to restrain its BOD (defendants) from carrying out a resolution approved by approximately 92.5 of the stockholders: authorizing the BOD to take the necessary steps to consolidate the properties and franchises of the LAGUNA TAYABAS BUS CO. w/ those of the BATANGAS TRANSPORTATION CO. 2) The grounds on which plaintiffs predicate their action are: a) the proposed consolidation or merger of the two companies would be prejudicial to the L.T.B. Co. and to them in particular who do not own shares of stock of B. T. Co. in that: During the last 10 years prior to the last war, the dividends declared by L. T. B. Co. were increasing, whereas the dividends declared by B. T. Co. were decreasing in amount. In 1941, the shares of L. T. B. Co. cost P250 each in the market, whereas the shares of B. T. Co. cost only P150 each. A comparative study of the net gains of each company for the first six months of 1947 showed that the profits of the L. T. B. Co. exceeded B. T. Co. by approximately P67,000. As a-consequence, the shares of L. T. B. Co. were costing P360 a share, while the shares of the B. T. Co. were quoted at only P200.' b) the proposed consolidation or merger was illegal because the unanimous vote of the stockholders was not secured and that the same was contrary to the spirit of our laws.
On appeal, Plaintiffs contend that: its real purpose is to effect a merger or consolidation, and as such there is no law in the Philippines under which it may properly be carried out
Defendants Comment: that it is merely an exchange of properties sanctioned by our corporation law, as amended, and that even if it be considered as a consolidation, the
same can still he carried out under Commonwealth Act No. 146, section 20, otherwise known as the Public Service Law. ISSUE 1: W the real purpose of the disputed resolution is the merger or consolidation of the properties and franchises of the LAGUNA TAYABAS BUS CO. w/ those of the BATANGAS TRANSPORTATION CO. w/n the meaning of the law? HELD 1: It is apparent that the purpose of the resolution is not to dissolve the Laguna Tayabas Bus Co. but merely to transfer its assets to a new corporation in exchange for its corporation stock. This intent is clearly deducible from the provision that the Laguna Tayabas Bus Co. will not be dissolved but will continue existing until its stockholders decide to dissolve the same. ISSUE 2: (In the affirmative case) W said merger or consolidation can be carried out under the law now existing and in force in the Philippines? HELD 2: This comes squarely within the purview of section 281/2 of the corporation law which provides, among others, that a corporation may sell, exchange, lease or otherwise dispose of all its property and assets, including its good will, upon such terms and conditions as its Board of Directors may deem expedient when authorized by the affirmative vote of the shareholders holding at least 2/3 of the voting power. The words "or otherwise disposed of" is very broad and in a sense covers a merger or consolidation. The action of the corporation was taken having in view this provision of our corporation law and in our opinion the corporation has acted correctly. EDWARD J. NELL CO. v. PACIFIC FARMS INC. (1965) 1) EDWARD J. NELL COMPANY is the judgment creditor of INSULAR FARMS INC. (representing the unpaid balance of the price of a pump sold by it to INSULAR FARMS). 2) The writ of execution was returned unsatisfied stating that Insular Farms had no leviable property. 3) EDWARD J. NELL COMPANY filed the present action against PACIFIC FARMS INC. (appellee) for the collection of the judgment aforementioned: upon the theory that PACIFIC FARMS INC. (appellee) is the alter ego of INSULAR FARMS because the former had purchased all or substantially all of the shares of stock, as well as the real and personal properties of the latter, including the pumping equipment sold by appellant to INSULAR FARMS
The record shows that: a) b) c) (21 March ’58) PACIFIC FARMS INC. purchased 1,000 shares of stock of INSULARthat, thereupon, PACIFIC FARMS INC. sold said shares of stock to certain individuals, who forthwith reorganized said corporation, and that the BOD thereof, as reorganized, then caused its assets, including its lease-hold rights over a public land in Bolinao, Pangasinan, to be sold to herein PACIFIC FARMS INC. P10,000.00.
HELD: These facts do not prove that PACIFIC FARMS INC. is the alter ego of INSULAR FARMS, or is liable for its debts. There is neither proof nor allegation that: a) b) c) PACIFIC FARMS INC. had expressly or impliedly agreed to assume the debt of INSULAR FARMS in favor of appellant herein, or that PACIFIC FARMS INC. is a continuation of INSULAR FARMS, or that the sale of either the shares of stock or the assets of INSULAR FARMS to PACIFIC FARMS INC. had been entered into fraudulently, in order to escape liability for the debt of the Insular Farms in favor of appellant herein.
In fact, these sales took place (March, 1958) not only over (6) months before the rendition of the judgment (October 9, 1958) sought to be collected in the present action, but, also, over a month before the filing of the case (May 29, 1958) in which said judgment was rendered. Moreover, PACIFIC FARMS INC. purchased the shares of stock of Insular Farms as the highest bidder at an auction sale held at the instance of a bank to which said shares had been pledged as security for an obligation of Insular Farms in favor of said bank. It has also been established that the PACIFIC FARMS INC. had paid P285,126.99 for said shares of stock, apart from the sum of P10,000.00 it, likewise, paid for other assets of Insular Farms.
RATIO: Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts HELD b: Neither is it claimed that these transactions have resulted in the consolidation or merger of the Insular Farms and PACIFIC FARMS INC. (appellee herein). On the contrary, appellant's theory to the effect that PACIFIC FARMS INC. is an alter ego of the Insular Farms, negates such consolidation or merger, for a corporation cannot be its own alter ego.