Y-I Leisure Phil Inc v Yu

FACTS:
• Yu bought a gold and country club shares from MADCI but upon full payment, Yu found
out that the site was inexistence.
• Yu demanded that his payment be returned. Despite recognition of Yu’s investment, Yu
did not received any refund.
• Yu file a complaint for collection of money w/ prayer for PA against MADCI and its
President Sangil.
• After discovering that substantially all of MADCI assets were sold to YIL, YILPI, and
YICRI, Yu amended its complaint and impleaded them, alleging that the transfer was
done to defraud its creditors, and w/o the required approval of its BOD and SH.
• The impleaded parties alleged that the transfer was done pursuant to a MOA. Through
this MOA, it was found out that Sangil own 60% of the stock of MADCI while MADCI own
120 hectares land and YIL subscribe to the remaining 40% with the condition MADCI
and Sangil is to obtained several Gov’t permits. And should they fail, they have to
returned to YIL the amounts it’s paid with interest, and failure to return the same will
authorized YIL to sell the 120H land.
• MADCI allegedly violated the MOA hence the land were taken over by YIL and this land
were eventually sold to YICRI.

RTC Ruling:

• MADCI liable for return of Yu's payment; YIL, YILP, and YICRI not liable.

CA Ruling:

• YIL and its companies jointly and severally liable for Yu's claim by the fact that they
bought the entire assets of MADCI and its creditors might not have other means of
collecting the amounts due to them, except by going after the assets sold.
• Now, petitioners counter that they did not assume such liabilities because the transfer of
assets was not committed in fraud of the MADCI’s creditors.

ISSUE:
WON element of Fraud is required to hold 3rd party buyer liable to sellers’ creditors upon the
transfer of all or substantially all the assets of a seller corporation;

RULING:
No. Fraud is not required to apply business-enterprise transfer. The business-enterprise transfer
rule applies when two requisites concur: (a) the transferor corporation sells all or substantially
all of its assets to another entity; and (b) the transferee continues the business of the transferor
corporation. Both are present in this case.

According to its AI, MADCI primary purpose was to engage in real estate of all kinds. Sale of its
land rendered it incapable of continuing its business or accomplishing the purpose for which it
was incorporated.

While the Corp Code allows the transfer of all or substantially all of the assets of a corp, the
transfer should not prejudice the creditors of the assignor corp. Under the petitioners have
consequently inherited the liab of MADCI. To allow an assignor to transfer all of its business
properties and assets without the consent of its creditors will place the assignors assets beyond
the reach of its creditors.