GR 207161 Leonen (Digest)
G.R. No. 207161 , September 8, 2015
Y-I LEISURE PHILIPPINES, INC., YATS INTERNATIONAL LTD. AND Y-I CLUBS AND RESORTS, INC., PETITIONERS, VS. JAMES YU, RESPONDENT.
FACTS
Respondent James Yu filed a collection suit against Mt. Arayat Development Co. Inc. (MADCI) and its then President Rogelio Sangil for the refund of his ₱650,000.00 investment in shares of MADCI’s non-existent golf and country club project. He later amended his Complaint to implead petitioners Yats International Ltd., Y-I Leisure Philippines, Inc., and Y-I Clubs and Resorts, Inc., after discovering that MADCI had sold substantially all of its assets to petitioners. The Regional Trial Court held MADCI and Rogelio Sangil solidarity liable but dismissed the case against petitioners. The Court of Appeals affirmed but modified the decision, holding petitioners also liable to satisfy Yu’s claim due to the transfer of MADCI’s entire assets to them. The ponencia affirmed the Court of Appeals Decision.
ISSUE
Whether petitioners, as purchasing corporations, are liable for the debt of the selling corporation, MADCI, to respondent James Yu.
RULING
Yes, petitioners are liable. The concurring opinion applies the third exception established in Edward J. Nell Company v. Pacific Farms, Inc., which states that a purchasing corporation is liable for the debts of the selling corporation when the purchasing corporation is merely a continuation of the selling corporation. This exception is grounded in Section 40 of the Corporation Code, which requires stockholder ratification for the sale of “all or substantially all” corporate assets and contemplates a transfer of the entire business enterprise. The Court of Appeals found that the sale of MADCI’s entire 120-hectare asset rendered it incapable of continuing its golf course business, while petitioner corporation’s President testified that they bought MADCI’s shares because of an interest in developing a golf course on the land. Therefore, the purchaser corporation continued the business of the seller, making it liable for the seller’s debts, including the refund owed to respondent James Yu.