Delpher Trades v. IAC (G.R. No. 69259)

CASE DIGEST: 241 Phil. 358 THIRD DIVISION [ G.R. No. 69259, January 26, 1988 ] DELPHER TRADES CORPORATION, AND DELFIN PACHECO, PETITIONERS, VS. INTERMEDIATE APPELLATE COURT AND HYDRO PIPES PHILIPPINES, INC., RESPONDENTS.

FACTS: A and B were owners of a parcel of land. They leased the land to CCI, Inc. The lease contract provided that during the existence or after the term of the lease, the lessors (A and B) should first offer the same to the lessee and the latter has priority to buy under similar conditions. Later, CCI, Inc. assigned its rights in favor of Hydro, Inc., with the consent of A and B. Thereafter, a deed of exchange was executed by A and B, on the one hand and Delpher Corp., upon the other, whereby A and B conveyed to Delpher Corp. the leased property for 2,500 shares of stock of Delpher. On the ground that it was not given the first option to buy the leased property pursuant to the provision in the lease agreement, Hydro filed a complaint for reconveyance in its favor under conditions similar to those whereby Delpher acquired the property from A and B.

The trial court declared valid Hydro’s preferential right to acquire the property (right of first refusal), and ordered A and B and Delpher to convey the property to Hydro. The Court of Appeals affirmed the decision. The Supreme Court reversed the judgment.

HELD: In the exchange for their properties whereby A and B acquired 2,500 original unissued no par value shares of stocks of Delpher, the former became stockholders of the latter by subscription, and by their ownership of the 2,500 shares, A and B acquired control of the corporation. In effect, Delpher is a business conduit of A and B. What they did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher to take control of their properties and at the same time save on inheritance taxes. The deed of exchange of property between A and B and Delpher cannot be considered a contract of sale. There was no transfer of actual ownership interests by A and B to a third party. A and B merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, Hydro has no basis for its claim of a right of first refusal.