Title
Delpher Trades Corp. vs. Intermediate Appellate Court
Case
G.R. No. 69259
Decision Date
Jan 26, 1988
A family transferred leased property to their corporation via a Deed of Exchange, retaining control. The Supreme Court ruled it wasn’t a sale, upholding their estate planning strategy and dismissing the lessee’s claim of a violated right of first refusal.

Case Summary (G.R. No. 170701)

Key Dates

  • April 3, 1974: Lease of Lot No. 1095 to Construction Components International, Inc.
  • August 3, 1974: Assignment of lease to Hydro Pipes Philippines, Inc.
  • January 3, 1976: Deed of exchange conveying Lot No. 1095 and another parcel to Delpher Trades Corporation for 2,500 no-par shares
  • Trial and appellate decisions issued (Cavite)
  • January 26, 1988: Supreme Court decision

Applicable Law

  • 1987 Philippine Constitution (in force at decision)
  • Civil Code of the Philippines
    • Article 1468 (Sale)
    • Article 3638 (Exchange/Barter)
  • National Internal Revenue Code, Section 35(c)(2) (tax-free exchange for corporate control)
  • Principles of corporate personality and stock subscription

Factual Background

Delfin and Pelagia Pacheco owned 27,169 m² identified as Lot No. 1095, Malinta Estate, Valenzuela. They leased it to Construction Components International, Inc. under a right-of-first-refusal clause. The lessee’s rights were assigned to Hydro Pipes Philippines, Inc., with the lease and assignment annotated on the title. On January 3, 1976, the Pachecos executed a deed of exchange: they conveyed Lot No. 1095 and another parcel to Delpher Trades Corporation in exchange for 2,500 unissued no-par shares valued collectively at ₱1,500,000.

Procedural History

Hydro Pipes filed for reconveyance, claiming the lease’s right of first refusal had been infringed. The trial court declared Hydro Pipes’ preferential right valid, ordering conveyance at ₱14 per m². The IAC affirmed. Delpher and Delfin Pacheco petitioned by certiorari. The Supreme Court initially denied, then granted upon reconsideration.

Issue

Whether the deed of exchange constituted a sale triggering Hydro Pipes’ right of first refusal under the lease, or whether it was a genuine exchange that left beneficial ownership unchanged.

Petitioners’ Contentions

  1. The exchange was an estate-planning device; beneficial ownership remained with the Pachecos.
  2. No third-party sale occurred; the land was exchanged for shares in the family’s own corporation.
  3. As no sale took place, the right of first refusal was not triggered.
  4. Delpher Trades Corporation is an alter ego of the Pachecos; corporate form should not affect substance.

Respondent’s Contentions

  1. Delpher Trades Corporation is a distinct juridical entity; the transaction transferred ownership to a third party.
  2. Hydro Pipes’ contractual right extends to any transfer of ownership interests.
  3. The deed of exchange effectively disposes of the property and must honor the lease’s preemptive clause.

Supreme Court Analysis

  • Stock subscription for no-par shares constitutes consideration in exchange transactions (Art. 3638); the Pachecos became stockholders by subscribing for unissued shares.
  • No-par shares denote aliquot interests without a stated monetary value, focusing attention on corporate assets rather than a nominal share price.
  • The Pachecos received 2,500 shares (55% of capital) for land valued substantially higher at prevailing market rates.
  • The exchange qualified for tax-free treatment under Section 35(c)(2) of the National Internal Rev

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