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.

3) 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

4) 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
4) The record shows that:

a) (21 March ’58) PACIFIC FARMS INC. purchased 1,000 shares of

stock of INSULARthat,

b) thereupon, PACIFIC FARMS INC. sold said shares of stock to

certain individuals, who forthwith reorganized said corporation, and

c) 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) PACIFIC FARMS INC. had expressly or impliedly agreed to assume

the debt of INSULAR FARMS in favor of appellant herein, or

b) that PACIFIC FARMS INC. is a continuation of INSULAR FARMS,

or

c) 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.