THE EDWARD J. NELL COMPANY v. PACIFIC FARMS, INC.

GR No. L-20850
November 29, 1965
Cconcepcion, J.

PETITIONER: THE EDWARD J. NELL COMPANY

RESPONDENT: PACIFIC FARMS, INC.

DOCTRINE: 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.

FACTS:
 On October 9, 1958, Petitioner (Nell Co.) secured against Insular Farms, in a civil case (MTC-
Manila), a judgment for the sum of P1,853.80 – representing the unpaid balance of the price of a pump
sold by Nell Co. to Insular
o A writ of execution was returned unsatisfied, stating that Insular had no leviable property.
o On Nov. 13, 1959, Nell Co. filed with the civil case court an action against PACIFIC FARMS
for the collection of the judgment – upon the theory that Pacific Farms is the alter ego of
Insular Farms (which Pacific denied).
 MTC: dismissed Nell Co.’s complaint
o From this judgment, Nell Co. appealed to the CFI  CFI likewise dismissed  appeal to CA
(also dismissed)
 Hence, the present appeal to SC, upon the ground that the CA had erred in:
o Not holding Pacific Farms liable for the said unpaid obligation of Insular; and
o Not granting atty’s fees to Nell Co.
ISSUE:
Whether PACIFIC FARMS, INC. is liable to NELL, CO.? – NO
HELD:
On Nell Co.’s complaint
 Nell Co.’s complaint in the MTC was anchored upon the theory that Pacific is an alter ego of Insular,
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 Nell Co. to
Insular.
 The record showed that:
o On March 21, 1958, Pacific purchased 1,000 shares of stock of Insular Farms for P285,126.99;
o Pacific sold said shares to certain individuals, who then reorganized said corporation;
o The board of directors thereof, as reorganized, then caused its assets (including its leasehold
rights over a public land in Pangasinan) to be sold to Pacific for P10,000
On whether Pacific is an alter ego of Insular (NO)
 These facts do NOT prove that Pacific is an alter ego of Insular Farms, or is liable for its debts.
 The rule is set forth in Fletcher Cyclopedia Corporations:
o GR: 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.
o EX:
 (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.
 In the instant case, there is neither proof nor allegation that Pacific had expressly or impliedly agreed
to assume the debt of Insular in favor of Nell Co (1 st exception); or that Pacific is a continuation of
Insular (3rd exception); or that the sale of either the shares or the assets of Insular to Pacific has been
entered into fraudulently in order to escape liability (4th exception)
o In fact, the sales took place (March 1958) not only over 6 months before rendition of the
judgment (Oct. 1958) but also over a month before filing of the case (May 1958)
o Also, Pacific purchased the shares of Insular 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 in favor of said bank
o It has also been established that Pacific had paid P258,126.99 for said shares, apart from the
sum of P10,000 it paid for the other assets of Insular.
 Nell Co. contention: urges that the said P10,000 paid for other assets is a grossly
inadequate price because Nell Co. claims said assets were worth around P285,126.99 –
thus fraudulent sale
 SC: No. The sale was submitted to and approved by SEC. It must be presumed,
therefore, that the price paid was fair and reasonable. Also. The only issue raised in the
court of origin was W/N Pacific is an alter ego of Insular. The question of W/N the sale
of assets for P10,000 was fraudulent had not been put in issue in said court. Hence, it
may not be raised on appeal.
 Neither is it claimed that these transactions have resulted in the CONSOLIDATION or MERGER of
Insular and Pacific. On the contrary, Nell Co.’s theory that Pacific is an alter ego of Insular farms
NEGATES such consolidation or merger, for a corporation cannot be its own alter ego.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the appellant. It is so
ordered.