You are on page 1of 3

[7] DELPHER TRADES CORP. v.

IAC (Recio) Pachecos when they exchanged the subject parcel of land for no par value
January 26, 1988 | GUTIERREZ, JR., J. | No-par value shares shares.

PETITIONER: DELPHER TRADES CORPORATION, and DELFIN DOCTRINES:


PACHECO ● After incorporation, one becomes a stockholder of a corporation by
RESPONDENTS: INTERMEDIATE APPELLATE COURT and HYDRO subscription or by purchasing stock directly from the corporation or
PIPES PHILIPPINES, INC. from individual owners thereof.
● A no-par value share does not purport to represent any stated
SUMMARY: Siblings Delfin and Pelagia Pacheco owned a property located in proportionate interest in the capital stock measured by value, but only
Valenzuela. The said siblings leased the subject property to Construction an aliquot part of the whole number of such shares of the issuing
Components International, Inc. (CCII), and granted the said company the right of corporation.
first refusal. CCII then assigned its rights and obligations under the contract of ● The capital stock of a corporation issuing only no-par value shares is
lease to Hydro Pipes Philippines, Inc. 2 years later, lessors Delfin and Pelagia NOT set forth by a stated amount of money, but instead is expressed to
executed a Deed of Exchange in favor of Delpher Trades Corporation. The be divided into a stated number of shares, such as, 1,000 shares. This
former conveyed to the latter the subject parcel of land and another property in indicates that a shareholder of 100 such shares is an aliquot sharer in the
Valenzuela (so 2 properties) in exchange for 2,500 no par value shares of stock ASSETS of the corporation, no matter what value they may have.
which is equivalent to 55% majority in the said corporation. Arguing that its
right to first refusal was violated, Hydro Pipes PH filed an action for FACTS:
reconveyance over the subject parcel of land. CFI ruled in favor of Hydro Pipes 1. 1974: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of
PH, and IAC affirmed. Hence, this petition by Delpher Trades Corp. and Delfin. 27,169 square meters of real estate (Malinta Estate), in the Municipality of
Delpher Trades Corp. and Deflin presented Eduardo Neria (CPA and son-in-law Polo (now Valenzuela), Province of Bulacan (now Metro Manila).
of late Pelagia) who testified that Delpher Trades Corp. is a family corporation 2. In the same year, the said co-owners leased the same property to
organized by the children of Delfin, Pelagia, and their respective spouses TO Construction Components International Inc., providing that “should [the
AVOID TAXES. Thus, Eduardo explained that there was no actual transfer of lessor] decide to sell the property leased, [he] shall first offer the same to
ownership, since the Pachecos remained in full control of the property, and that the lessee” (Right of first refusal)
Delpher Trades Corp. is a mere alter ego or conduit of the Pacheco owners. On 3. Lessee Construction Components International, Inc. assigned its rights and
the other hand, Hydro Pipes PH argue that Delpher Trades Corp. is an entity obligations under the contract of lease in favor of Hydro Pipes Philippines,
separate and distinct from the Pacheco co-owners; thus, there was an actual Inc. The contract of lease and the assignment were annotated at the back fo
transfer of ownership when the Pachecos acquired shares of stock in exchange the title.
for the conveyance of the property. The issue is WoN the Deed of Exchange 4. 1976: A Deed of Exchange was executed between lessors Delfin and
prejudiced Hydro Pipes PH’s right of first refusal. - NO. The Court noted that Pelagia Pacheco and herein petitioner Delpher Trades Corporation.
the Pachecos acquired 2,500 original unissued NO PAR VALUE shares of stock a. The said lessors conveyed to the latter the leased property together
of Delpher Trades Corp. A no-par value share does not purport to represent any with another parcel of land located in Valenzuela for 2,500 shares
stated proportionate interest in the capital stock measured by value, but only an of stock of Delpher Trades Corporation with a total value of
aliquot part of the whole number of such shares of the issuing corporation. The Php 1.5 MILLION.
holder of no-par shares may see from the certificate itself that he is only an 5. On the ground that it was not given the first option to buy the leased
aliquot sharer in the assets of the corporation. Such acquisition of no par value property pursuant to its right of first refusal, respondent Hydro Pipes
shares did not involve any sum of money in contract to par value shares. It was Philippines, Inc., filed an amended complaint for reconveyance of subject
also stressed that by their ownership of the 2,500 no par shares of stock, the parcel of land.
Pachecos have control of the corporation; thus, Delpher Trades Corporation is a 6. CFI-Bulacan: ruled in favor of Hydro Pipes Philippines, Inc.
mere business conduit of the Pachecos used to avoid certain taxes. Finally, the 7. IAC: Affirmed.
Court laid out Eduardo Neria’s testimony where he explained that since a 8. Hence, this petition by Delpher Trades and Delfin Pacheco.
corporation does not die, it can continue to hold onto the property for at least 50 9. Petitioners Delpher Trades allege:
years. If the property was held by the spouses instead, the said property will be a. If its petition will be denied, private respondent Hydro Pipes
tied up in SUCCESSION PROCEEDINGS and payment of ESTATE and Philippines, Inc. will acquire from petitioners a parcel of industrial
INHERITANCE TAXES when the Spouses die. This was the intention of the land consisting of 27,169 square meters or 2.7 hectares for only
P14/sq. meter, or a total of P380,366, although the prevailing value Court of First Instance of Bulacan is DISMISSED. No costs.
thereof is approximately P300/sq. meter or P8.1 Million.
b. There was no transfer of ownership of the parcel of land. (See RATIO:
further allegations on this in Fact #10 and #11)
10. Eduardo Neria, CPA and son-in-law of the late Pelagia Pacheco testified [[[NOTE: SC initially denied the petition but upon motion for reconsideration, SC
that: set aside the resolution denying the petition and gave it due course.]]]
a. Delpher Trades Corporation is a family corporation;
b. that the corporation was organized by the children of the two We rule for the petitioners Delpher Trades and Delfin Pacheco.
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and 1. After incorporation, one becomes a stockholder of a corporation by
spouses Delfin Pacheco and Pilar Angeles) who owned in common subscription or by purchasing stock directly from the corporation or from
the parcel of land leased to Hydro Pipes Philippines in order to individual owners thereof.
perpetuate their control over the property through the 2. In the case at bar, in exchange for their properties, the Pachecos acquired
corporation and to avoid taxes. 2,500 original unissued NO PAR VALUE shares of stocks of the
c. that in order to accomplish this end, two pieces of real estate which Delpher Trades Corporation.
had been leased to Hydro Pipes Philippines were transferred to the a. Consequently, the Pachecos became stockholders of the
corporation (Deed of Exchange). corporation by subscription.
d. In exchange for the properties, Pelagia and Delfin acquired 2,500 3. The essence of the stock subscription is an agreement to take and pay for
unissued no par value shares of stock which are equivalent to a original unissued shares of a corporation, formed or to be formed.
55% majority in the corporation because the other owners 4. It is significant that the Pachecos took no par value shares in exchange
only owned 2,000 shares. for their properties.
e. Spouses Pacheco referred to this scheme as “estate planning”. a. [The SC quoted a long part of Agbayani’s commentary on
11. Give the above mentioned facts, Delpher Trades and Delfin Pacheco now Commercial Law to explain no-par value shares. this entire sub-
contend that there was actually no transfer of ownership of the subject part is dedicated to that.]
parcel of land since the Pachecos remained in control of the property. b. A no-par value share does not purport to represent any stated
Thus, they allege that: proportionate interest in the capital stock measured by value,
“The transfer of ownership, if anything, was merely in form but not in but only an aliquot part of the whole number of such shares of
substance. In reality, petitioner Delpher Trades Corporation is a mere the issuing corporation.
alter ego or conduit of the Pacheco co-owners; hence the corporation i. “aliquot” → pronounced “ali-kwat”; means “portion of
and the co-owners should be deemed to be the same, there being in a larger whole” [I googled it, so u dont have to ily]
substance and in effect an Identity of interest.” c. The holder of no-par shares may see from the certificate itself that
a. In simpler terms: Delpher Trades and Delfin argue that they did he is only an aliquot sharer in the assets of the corporation. But this
NOT sell the property, but merely exchanged the land for shares of character of proportionate interest is not hidden beneath a false
stocks in their OWN corporation. appearance of a given sum in money, as in the case of par value
12. Respondents Hydro Pipes PH argue that Delpher Trades Corp. is an entity shares.
separate and distinct from its owners, the Pachecos; thus, there was an d. The capital stock of a corporation issuing only no-par value shares
actual transfer of ownership interests over the leased property when the is not set forth by a stated amount of money, but instead is
same was exchanged for shares of stock. expressed to be divided into a stated number of shares, such as,
1,000 shares. This indicates that a shareholder of 100 such shares
ISSUE: is an aliquot sharer in the assets of the corporation, no matter what
1. WoN the Deed of Exchange of the properties executed by the Pachecos and value they may have, to the extent of 100/1,000 or 1/10.
Delpher Trades Corporation prejudiced private respondent’s right of first i. Thus, by removing the par value of shares, the attention of
refusal. - NO. persons interested in the financial condition of a
corporation is focused upon the value of assets and the
RULING: WHEREFORE, the instant petition is hereby GRANTED, The questioned amount of its debts.
decision and resolution of the then Intermediate Appellate Court are REVERSED 5. Moreover, there was no attempt to state the true or current market value of
and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then the real estate. Land valued at P300.00 a square meter was turned over to
the family's corporation for only P14.00 a square meter.
6. It is to be stressed that by their ownership of the 2,500 no par shares of
stock, the Pachecos have control of the corporation. Their equity capital
is 55% as against 45% of the other stockholders, who also belong to the
same family group.
a. In effect, the Delpher Trades Corporation is a business conduit
of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at
the same time save on inheritance taxes.
7. The SC then proceeded to lay out the testimony of Eduardo Neria (CPA,
son-in-law of late Pelagia Pacheco) regarding the benefits of the Deed of
Exchange executed by the Spouses.
a. Eduardo explained that by executing such Deed for no par value
shares gave the Spouses the ff benefits: “Continuous control of
the property, tax exemption benefits, and other inherent
benefits in a corporation.”
b. Eduardo cited the National Internal Revenue Code which provides:
“No gain or loss shall also be recognized if a person exchanges his
property for stock in a corporation of which as a result of such
exchange said person alone or together with others not exceeding
four persons gains control of said corporation."
c. Furthermore, Eduardo explained that since a corporation does not
die, it can continue to hold onto the property for at least 50
years. If the property was held by the spouses instead, the said
property will be tied up in SUCCESSION PROCEEDINGS
and payment of ESTATE and INHERITANCE TAXES when
the Spouses die.
8. The records do not point to anything wrong or objectionable about this
"estate planning" scheme resorted to by the Pachecos. It is the legal right of
a taxpayer to decrease the amount of his taxes by means which the law
permits.
9. THUS, the Deed of Exchange of property between the Pachecos and
Delpher Trades Corporation cannot be considered a contract of sale.
There was no transfer of actual ownership interests by the Pachecos to
a third party.
a. The Pacheco family merely changed their ownership from one
form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a
light of first refusal under the lease contract.