GR L 20850; (November, 1965) (Digest)
G.R. No. L-20850 November 29, 1965
THE EDWARD J. NELL COMPANY, petitioner, vs. PACIFIC FARMS, INC., respondent.
FACTS
Petitioner Edward J. Nell Company secured a judgment against Insular Farms, Inc. for the unpaid balance of a pump’s price. A writ of execution was returned unsatisfied as Insular Farms had no leviable property. Petitioner then filed an action against respondent Pacific Farms, Inc. to collect the judgment, alleging that respondent was the alter ego of Insular Farms. Petitioner’s theory was based on respondent having purchased all or substantially all of the shares of stock and the real and personal properties of Insular Farms, including the pump in question. The Municipal Court dismissed the complaint, a decision affirmed by the Court of First Instance and the Court of Appeals. Petitioner appealed to the Supreme Court.
ISSUE
Whether respondent Pacific Farms, Inc. is liable for the unpaid obligation of Insular Farms, Inc. as its alter ego.
RULING
No. The Supreme Court affirmed the decision of the Court of Appeals. The general rule is that a corporation purchasing the assets of another is not liable for the debts of the seller, except in specific instances: (1) where the purchaser agrees to assume the debts; (2) where the transaction amounts to a consolidation or merger; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is fraudulent to escape liability. None of these exceptions apply. There was no proof or allegation that respondent agreed to assume the debt, that it was a continuation of Insular Farms, or that the sales were fraudulent. The sales occurred months before the judgment was rendered and even before the original case was filed. Respondent purchased the shares at a public auction as the highest bidder and paid a substantial sum. The separate purchase of other assets for P10,000 was approved by the Securities and Exchange Commission, presuming it fair, and the issue of fraud was not raised in the trial court. The claim of alter ego negates a merger, as a corporation cannot be its own alter ego. Consequently, the claim for attorney’s fees was also denied.