CASE Delpher Trades and Delphin Pacheco AUTHOR: Mendoza

v.IAC and Hydro Pipes Philippines,Inc. NOTES:

[G.R. No. DATE]L-69259 January 26,1988
TOPIC:
PONENTE: Gutierrez Jr.
FACTS:
• Petitioners question the decision of the IAC which ruled in favor of Hydro Pipe's contention that
the deed of exchange whereby Delfin Pacheco and his wife conveyed a parcel of land to Delpher
Trades in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of
first refusal under a lease contract.
• Background: 1.In 1974, the Pachecos were the owners of 27,169 sq.m of real estate in Polo (now
Valenzuela), Bulacan.
• 2. On April 3,1974, the Pachecos leased to Construction Components International
Inc. the lot provided that during the existence or after the term of this lease,the lessor should he
decide tosellthe property leased shallfirst offer the same to the lessee.
• 3.On August 3, 1974 ,the lessee-Construction Components International assigned
its rights and obligations under the contract of lease in favor of Hydro Pipes with the signed
conformity and consent of the lessors-Pachecos. Including the contract of lease,as well as the
assignment of lease were annotated at the back of the title.
• 4. On, January 3,1976, a deed of exchange was executed between the Pachecos and
Delpher Trades whereby the Pachecos conveyed to the latter the leased property in question
together with their other lotsa in Valenzuela.
• Hydro Pipe sued the Pachecos on the ground that it was not given the first option to buy the
leased property pursuant to the contract and filed for the reconveyance of the lot in question.
• The CFI of Bulacan ruled in favor of Hydro Pipe declaring the valid existence of its preferentialright
to acquire the property (right of first refusal) and ordering its reconveyance.
• The IAC affirmed the decision of the CFI.Hence,this petition to the SC.
• Delpher's Contentions: 1. That Hydro Pipe will acquire from it a parcel of industrial land for only
14Php/sq.m although the prevailing value is approximately 300Php/sq.m.
• 2.That Hydro Pipe is allowed to exercise its right of first refusal even if
there is no 'sale' or transfer of actual ownership interests by the Pachecos to third parties.
• 3. That Delpher Trades is a family corporation and was organzied by
the chiuldren of the spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin
Pacheco and Pilar Angeles,who owned in commoin the disputed parcel of land leased to Hydro
Pipes.
• 4. That in order perpetuate their control over the property through the
corporation and to avoid taxes, the two pieces of real estate (including the lot leased to Hydro
Pipes) were transferred toDelpher Trades by virtue of a deed of exchange of property.And in
exchange for these properties, the Pachecosacquired 2,500 unissued no par value shares of
stockwhich are equivalent to a 55% majority in the corporation because the other owners only
owned 2,000 shares. They refer to this scheme as "estate planning".
• 5. That there was no actual transfer of ownership of the land since the
Pachecos remainted in control of the property. The transfer of ownership, if anything, was merely
in form but not substance. Because in reality, Delpher Trades is a mere alter ego of the
Pachecos;hence, the corporation and the Pachecos should be deemed the same.
• Hyrdo Pipes' Contention: 1. That Delpher Trades is a corporate entity separate and distinct from
the Pachecos.Thus, it cannot be said that Delpher Trades is the Pachecos' same alter ego.
ISSUE(S):
Whether or not the deed of exchange of the properties executed by the Pachecos on the one hand
and the Delpher Trades on the other was meant to be a contract which, in effect,prejudiced Hydro
Pipe's right of first refusal over the leased property.
HELD:
SC ruled in favor of the petitioners
RATIO:
• 1. In exchange for their properties, the Pachecos acquired 2,500 original unissued no par value
shares of sotcks of the Delpher Trades Corporation.Consequently, the Pachecos became
stockholders of the corporation by subscription. "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation,formed or to be
formed.It is significant that the Pachecos took no ar value shares in exchange for their
properties.
• 2. There was no attemp0t to state the true or current market value of the lot. Land valued at
P300/sq.m was turned over to the family's corporation for only P14/sq.m. 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 of 55% as against 45% of the other stockholders,who also
belong to the same family group.
• 3.In effect, the Delpher Trades 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.
• 4. 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.The Pacheco family mere changed their ownership from one form
to another.Hence,Hydro Pipes has no basisfor its claim of a right of first refusal under the lease
contract.
CASE LAW/ DOCTRINE:
After incorporation,one becomes a stockholder of a corporation by subscription or by purchasing stock
directly from the corporation or from individual owners thereof.

A no par value share does not purport to represent any stated proportionate interest in the capitalstock
measured by value but only an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no par value shares may see fromthe certificate itself that he is only a an
aliquot pshares in the assets of the corporation.
DISSENTING/CONCURRING OPINION(S):