Edward J. Nell Co. vs. Pacific (15 SCRA 415 [1965]) CorpLaw Case Digest by: A.J. Gomez

 Edward J. Nell Co. vs. Pacific (15 SCRA 415 [1965])

FACTS:

On March 21, 1958, Pacific Farms (PACIFIC) purchased 1,000 shares of stock of Insular Farms  (INSULAR) for ₱285,126.99. PACIFIC, in turn, sold said shares of stock to certain individuals, who forthwith reorganized INSULAR. 

The board of directors thereof, as reorganized, then caused its assets, to be sold to PACIFIC for ₱10,000.00. 

On October 9, 1958, Edward J. Nell Co. (NELL) secured from the Municipal Court of Manila (COURT)  a judgment (Writ of Execution) against INSULAR for the sum of ₱1,853.80 — representing the unpaid balance of the price of a pump sold by NELL to INSULAR. 

The Writ was returned unsatisfied.

NELL filed with the COURT an action against PACIFIC for the collection of the judgment against INSULAR. The complaint was anchored upon the theory that PACIFIC was the 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 appellant to Insular Farms. 

The COURT rendered judgment dismissing NELL’s complaint. 

Appeal to CFI and CA yield  the same result. 

ISSUE:

Whether or not PACIFIC is liable for the debt of INSULAR to NELL.

RULING:

No.

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.

In the case at bar, there is neither proof nor allegation that appellee had expressly or impliedly agreed to assume the debt of Insular Farms in favor of appellant herein, or that the appellee is a continuation of Insular Farms, or that the sale of either the shares of stock or the assets of Insular Farms to the appellee has been entered into fraudulently, in order to escape liability for the debt of the Insular Farms in favor of appellant herein.

Neither is it claimed that these transactions have resulted in the consolidation or merger of the Insular Farms and appellee herein. On the contrary, appellant's theory to the effect that appellee is an alter ego of the Insular Farms negates such consolidation or merger, for a corporation cannot be its own alter ego.

Being a mere consequence of the first assignment of error, which is thus clearly untenable, appellant's second assignment of error needs no discussion.

APPEALED Decision AFFIRMED.