Y-1 Leisure Phils. vs. Yats International Ltd. (770 SCRA 56 [2015])
FACTS:
Respondent Yu, a businessman interested in purchasing golf and country club shares, bought golf and country club shares from Mtn. Arayat Development Co. Inc. (MADCI) a real estate development corporation.
However, 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.
He filed with the RTC a complaint for collection of sum of money and damages with prayer for preliminary attachment against MADCI and its president Rogelio Sangil (Sangil).
MADCI claimed that it was Sangil who defrauded Yu.
After the pre-trial, Yu filed an Amended Complaint, wherein he also impleaded petitioner YIL, Y-I Leisure Phils., Inc. (YILPI) and Y-I Club & Resorts, Inc. (YICRI).
According to Yu, he discovered in the Registry of Deeds of Pampanga that, substantially, all the assets of MADCI, consisting of one hundred twenty (120) hectares of land located in Magalang, Pampanga, were sold to YIL, YILPI and YICRI. The transfer was done in fraud of MADCI's creditors, and without the required approval of its stockholders and board of directors under Section 40 of the Corporation Code.
RTC Ruling -
Because MADCI did not deny its contractual obligation with Yu, it must be liable for the return of his payments. However, it exonerated YIL, YILPI and YICRI from liability because they were not part of the transactions between MADCI and Sangil, on one hand and Yu, on the other hand
CA Ruling
Partly granted the appeal and modified the RTC decision by holding YIL and its companies, YILPI and YICRI, jointly and severally, liable for the satisfaction of Yu's claim.
ISSUES:
Whether or not the transfer of all or substantially all the assets of a corporation under Section 40 of the Corporation Code carries with it the assumption of corporate liabilities?
Whether or not the petitioner indeed became a continuation of MADCI's business?
HELD:
ISSUE 1
Yes. While the Corporation Code allows the transfer of all or substantially all of the assets of a corporation, the transfer should not prejudice the creditors of the assignor corporation.Under the business-enterprise transfer, the petitioners have consequently inherited the liabilities of MADCI because they acquired all the assets of the latter corporation.
The continuity of MADCI's land developments is now in the hands of the petitioners, with all its assets and liabilities. There is absolutely no certainty that Yu can still claim its refund from MADCI with the latter losing all its assets. To allow an assignor to transfer all its business, properties and assets without the consent of its creditors will place the assignor's assets beyond the reach of its creditors.
Thus, the only way for Yu to recover his money would be to assert his claim against the petitioners as transferees of the assets.The protection of the creditors of the transferor corporation, and does not depend on any deceit committed by the transferee -corporation, fraudis certainly not an element of the business enterprise doctrine.
ISSUE 2.
Yes. Section 40 refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill.
The sale under this provision does not contemplate an ordinary sale of all corporate assets; the transfer must be of such degree that the transferor corporation is rendered incapable of continuing its business or its corporate purpose.
It must be clarified, however, that not every transfer of the entire corporate assets would qualify under Section 40.
It does not apply [XPN]
if the sale of the entire property and assets is necessary in the usual and regular course of business of corporation, or
if the proceeds of the sale or other disposition of such property and assets will be appropriated for the conduct of its remaining business.
Thus, the litmus test to determine the applicability of Section 40 would be the capacity of the corporation to continue its business after the sale of all or substantially all its assets.
The Court is convinced that MADCI indeed had assets consisting of 120 hectares of landholdings in Magalang, Pampanga, to be developed into a golf course, pursuant to its primary purpose.
Because of its alleged violation of the MOA, however, MADCI was made to transfer all its assets to the petitioners. No evidence existed that MADCI subsequently acquired other lands for its development projects. Thus, MADCI, as a real estate development corporation, was left without any property to develop eventually rendering it incapable of continuing the business or accomplishing the purpose for which it was incorporated.
Sec. 40 must apply.
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